July 21, 2017

Minimum wage ― a fatal error in economic reasoning

Comment on NYT on ‘Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word’

Blog-Reference

Economics suffers from the fact that the subject matter is ill-defined. Economists think that they are doing economics while they bungle amateurishly in sociology and psychology. What economists overlook is that their subject matter is the structure and behavior of the economic system and that all questions about Human Nature/motives/behavior/action is NOT their business.

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

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

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. 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. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin)

“If the price of bananas is kept too high in relation to the price required to balance supply and demand there will be a surplus of bananas. If the price of bananas is below the market clearing price there will be a shortage. The same applies to labour. If the price ― i.e. the wage ― is too high there will be a surplus of workers, i.e. unemployment. If it is kept too low there will be a shortage of workers … Workers do sell their services just as banana producers sell their bananas.” (Brittain)

The banana theory of the labor market is just that: bananas. The lethal methodological blunder of microfounded employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole.

False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment.*

Egmont Kakarot-Handtke

* For details see cross-references Employment

July 20, 2017

Economics: math-adorned incoherent blather

Comment on Jason Smith on ‘What mathematical theory is for’

Blog-Reference

Jason Smith asserts: “The primary purpose of mathematical theory is to provide equations that illustrate relationships between sets of numerical data.”

This is a bit shallow and does not reach the level of Wikipedia: “Mathematics is the study of topics such as quantity (numbers), structure, space, and change. … Rigorous arguments first appeared in Greek mathematics, most notably in Euclid’s Elements. Since the pioneering work of Giuseppe Peano, David Hilbert, and others on axiomatic systems in the late 19th century, it has become customary to view mathematical research as establishing truth by rigorous deduction from appropriately chosen axioms and definitions.”#1

Why mathematics is so admirably appropriate to the objects of reality is not fully understood: “I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing.” (Feynman) see also (Wigner) and (Velupillai)

How does this relate to economics? Walrasian economics, too, is axiomatized, the hard core premises are verbally given as follows: “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)

It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. And this is why mathematics does not work in economics and why economics is a failed science or what Feynman famously called a cargo cult science.

In practical terms, it follows immediately: as soon as the word equilibrium/disequilibrium appears in an economic paper or textbook it can be thrown into the waste basket. The same holds for all other nonentities. Note well that this holds also for Jason Smith’s information equilibrium.

The decisive insight for the role of mathematics in economics is: “If it isn’t macro-axiomatized, it isn’t economics.”

The natural math of economics is the elementary math of accounting. This is the formalism to start with and NOT SS-function-DD-function-solution.#2 The problem with economists is that they grab a piece of math from the math department and apply it without deeper understanding.

The cargo cultic methodologist Jason Smith asserts: “A big step in using math to understand the world is when you’ve collected several different empirically successful models into a single paradigm or framework. That’s what Newton did in the seventeenth century. He collected Kepler’s, Galileo’s, and others’ empirical successes into a framework we call Newtonian mechanics.”

And how does Newtonian mechanics start? Yes, with the axioms of motion, see Axiomata Sive Leges Motus at the very beginning of Principia.#3

Physicists got the axioms right and this is why math works, economists messed up the axioms (first and foremost with HC5, i.e. equilibrium), and this is why the representative economist became a scientific laughing stock. The economist-turned-physicist Jason Smith is no exception.#4

Egmont Kakarot-Handtke

#1 Wikipedia Mathematics
#2 Macro for dummies
#3 Wikipedia Newton’s laws of motion
#4 You are fired!


For details of the bigger picture see cross-references Math/Mathiness

***
REPLY to Neil Wilson on Jul 21

You say: “Physics envy again. … Changing the framework in physics doesn’t fundamentally alter the behaviour of the elements studied ― even in quantum physics. It does in social sciences and economics ― because they involve people with brains and emotions that change their mind.”

This is not a case of physics envy but of social science delusion. Economics is a system science, i.e. about the structure/behavior of the economy, and NOT a social science, i.e. about Human Nature/motives/behavior action. This is the subject matter of psychology, sociology, political science, etcetera.

Economists are simply at the wrong party and have not realized it since the founding fathers.

Standard economics is based on behavioral axioms (constrained optimization, rational expectations, equilibrium) and mathematics simply does NOT work with nonentities. The calculation that when three angels and four angels dance on a pinpoint then the total is seven angels is not applied arithmetic but brain-dead crap.

It is well-known among mathematicians, but not among economists, that not all mathematical structures incorporate “certain aspect of empirical reality”, which means, that there is a “... whole crop of monster-structures, entirely without application.” (Bourbaki)

Standard economics, i.e. supply-demand-equilibrium, is such a monster-structure, entirely without application. This is NOT the fault of mathematics but of abysmally incompetent economists. Count Jason Smith and yourself among them.*

* Incompetence — the original sin in economics

Intellectual deficit spending

Comment on Lars Syll on ‘The balanced budget paradox’

Blog-Reference

Lars Syll gives a vivid description of the utterly confused state economists are in since 200+ years: “The pros and cons of public debt have been put forward for as long as the phenomenon itself has existed, but it has, notwithstanding that, not been possible to reach anything close to consensus on the issue — at least not in a long time-horizon perspective. One has as a rule not even been able to agree on whether public debt is a problem, and if — when it is or how to best tackle it. Some of the more prominent reasons for this non-consensus are the complexity of the issue, the mingling of vested interests, ideology, psychological fears, the uncertainty of calculating ad estimating inter-generational effects, etc., etc.”

Lars Syll gives the catch-all reason for the failure of economists — complexity of the issue#1 — and thus remains true to the custom of solidarity among fellow economists to avoid the real issue, which is all-around scientific incompetence.

It is not only the question of public debt which is stuck in the swamp where ‘nothing is clear and everything is possible’ (Keynes), it is ALL of economics. The fact is that 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.

Isn’t it curious that in Lars Syll’s comprehensive discussion of public deficit spending and functional finance the word profit does not appear once? The simple reason is that the profit theory is false since Adam Smith, therefore profit either does not at all appear in the models or in misspecified form.

The problem is that economists in general and Lars Syll, in particular, do not understand the elementary mathematics of macroeconomic accounting.#2 Let us make matters short here. The balances of the business sector, the household sector, the government sector and the rest of the world are interrelated as follows: Qm≡-Sm+I+Yd+(G-T)+(X-M). This boils down to Qm≡-Sm+(G-T) for I, Yd, X, M = 0.

So, there are two limiting cases: (i) If the household sector’s saving Sm goes up and the government’s deficit (G-T) goes up by the same amount the monetary profit of the business sector Qm remains unchanged. (ii) If the household sector’s saving Sm remains unchanged and the government’s deficit (G-T) goes up the profit of the business sector Qm goes up by the same amount.

So, the counterpart of an increased public deficit is either increased saving of the households or increased profits of the firms or some combination of the two. Therefore, to say that the counterpart of an increased public deficit is an increased surplus of the ‘private sector’ obscures important real world differences.

What is entirely missing in Lars Syll’s discussion of public debt is that public deficit spending is, first of all, a profit machine.#3 This is not different from private deficit spending. In the past decades the US households increased their debt, that is, they were dissaving. So, BOTH the private and public households ran deficits. From the formula above follows that this boosts profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

The interrelation between changes of public debt and profit is obscured by lumping together the business sector and the household sector to the ‘private sector’ and repeating the idiocy ‘We owe the debt to ourselves’.

Egmont Kakarot-Handtke

#1 See also ‘Failed economics: The losers’ long list of lame excuses
#2 ‘Macro for dummies
#3 See also ‘Keynesianism as ultimate profit machine


Related 'New Economic Thinking: the 10 crucial points' and 'You are fired!' and 'Austerity and the idiocy of political economists' and 'Replacing sand by granite' and 'First Lecture in New Economic Thinking' and 'Macrofounded labor market theory' and 'The minimum wage debate: a showpiece of economists’ hereditary idiocy'

July 19, 2017

New Economic Thinking: the 10 crucial points

Comment on Bradford DeLong on ‘How to Think Like an Economist’

Blog-Reference and Blog-Reference and Blog-Reference on Jul 19 and Blog-Reference and Blog-Reference and Blog-Reference on Jul 20 adapetd to context

Bradford DeLong gives a comprehensive overview of what he and the representative economist understands under economic thinking.#1 His post can be taken as an inventory of all that is wrong with economics. This, in turn, delivers the red thread for the systematic enumeration of necessary changes.

(i) The State of Economics

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.

Provable false:
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.#2

This means that the popular textbooks from Samuelson (1947) to Mankiw and Rodrik are scientifically worthless.#3

(ii) Paradigm shift

Economics is a failed science. The four main approaches are indefensible. The arguments of the representative economist about specific difficulties of his subject matter have to be taken for what they are: as excuses, more precisely as thoroughly refuted excuses.#4

The fact that an approach is axiomatically false means that it cannot be improved but must be fully replaced.

(iii) System science

Bradford DeLong argues: “While economics is not a natural science, it is a science — a social science.” This is a popular misunderstanding. Economics is a system science. Economics is about how the economy works and NOT about Human Nature/motives/ behavior/action.#5 These issues are left to psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory etcetera.

(iv) Separation of Politics and Science

The question about the good society is a political question that has to be answered in the political realm and NOT in the scientific realm. Already John Stuart Mill was quite explicit about the separation of politics and science.#6

(v) True macrofoundations

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.

A paradigm shift means in practical term that economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations because if it isn’t macro-axiomatized, it isn’t economics.#7

(vi) Methodology

The failure of economics is mainly due to the Fallacy of Insufficient Abstraction. In other words, economists cannot rise above the level of storytelling. One story line is that of supply-demand-equilibrium and the wonderful feats of the Invisible Hand, the other story line is that of the struggle between the good guys=workers and the bad guys=capitalists. Storytelling is scientific rubbish but people like it.

The economy is an abstraction. The correct abstraction to start with is what Keynes called the ‘monetary theory of production’. Scientific theories are defined by material/formal consistency.

The analysis proceeds top down, that is it starts with macrofoundations which are step by step differentiated, in other words, the analysis advances from the elementary to the complex.

There is no vague blather, no rhetoric, no metaphors, no psychologism, no sociologism, no second-guessing of human motives or expectations, no gossip, no sitcom talk and no storytelling. There is nothing but measurable variables, equations and graphs. Because all variables are measurable all conclusions are testable.

(vii) The pure consumption economy

The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.#8 The pure consumption economy is formally given by:

• Three axioms:
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

• Two initial conditions: market clearing, i.e. X=O, and budget balancing, i.e. C=Yw.

• Two definitions: monetary saving of the household sector Sm≡Yw-C and monetary profit of the business sector Qm≡C-Yw. It always holds Qm+Sm=0 or Qm=-Sm.

(viii) The evolving economy

The axioms A1 to A3 refer to a period of predetermined length. The variables for one period and the next period are connected by rates of change (deterministic or random). The proper formal representation is not a system of equations but a simulation. The open ended simulation is given with the Economics God Equation.#9

(ix) The market

It is a must to forget a whole bunch of NONENTITIES: utility, production function, supply function = SS-curve, demand function = DD curve, equilibrium/disequilibrium. Supply-demand-equilibrium, the totem of micro/macro, is dead. Functions are fictions and therefore reduced to period elasticities.

The macroeconomic market is formally defined with the Law of Supply and Demand.#10

(x) Employment and real growth/decline

The pure consumption economy has, of course, to be expanded to the investment economy. This yields the employment equation.#11This equation shows how employment/ unemployment depends on aggregate demand and the price- and profit mechanism, i.e. on the relative changes of wage rate, price, and productivity. The growth/decline of output and changes of the income distribution can be derived from the employment equation. The stocks of inventory, money, and capital are consistently derived from the period flows as numerical integrals.

The employment equation proves that the market economy is inherently unstable and shows the possible entry points for effective policy measures.

Egmont Kakarot-Handtke

#1 How to think like an economist (if, that is, you wish to …)
#2 Economics: 200+ years of scientific incompetence and fraud
#3 The father of modern economics and his imbecile kids
#4 Failed economics: The losers’ long list of lame excuses
#5 Economics is NOT about Human Nature but the economic system
#6 The end of political economics
#7 First Lecture in New Economic Thinking
#8 For the verbal description see ‘How the intelligent non-economist can refute every economist hands down
#9 Wikimedia Economics God Equation


#10 Wikimedia Law of Supply and Demand
#11 Wikimedia Employment equation/structural Phillips curve


Immediately preceding 'How economists habitually mess it up'. For details of the big picture see cross-references Paradigm shift.

July 18, 2017

On econoblogosphere bias

Comment on Chris Dillow on ‘On BBC bias’

Blog-Reference and Blog-Reference

Chris Dillow is concerned: “One fact tells us this ― that the public are horribly wrong about many basic facts. Of course, this isn’t wholly or even mainly the BBC’s fault. But such massive ignorance should alert us to the possibility that the country’s most powerful broadcaster isn’t fulfilling its purpose of informing its viewers and listeners.”

That the public are horribly wrong about many basic economic facts, though, is mainly the fault of economists. The first fact where the public is horribly wrong is to think that economics is a science. Economists communicate this every year to the public with immense fanfare with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Fact is that there is no such thing as ‘Economic Sciences’. Theoretical economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories ― a rummage table where everybody can grab a convenient opinion.

Theoretical economics is scientifically unacceptable. And political economics is just this since 200+ years: politics. This is faithfully reflected in the econoblogosphere. Since the founding fathers economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/ Karl Marx.

So, is the economics blogoshpere fulfilling its purpose of informing the general public about economic matters? Or is it full of proto-scientific crap, incompetent blather, disinformation? Are all comments published as they come or are some made to vanish into nirvana? Are some threads edited ex post? Does attention and reputation management happen? Is the BBC biased? You bet. Is the econoblogosphere biased? You bet. Does Chris Dillow make comments disappear?#1

The paradox of communication is: the information you get is not the one you need, and the information you need is not the one you get. It is much like Sherlock Holmes’s ‘curious incident of the dog in the night-time’.#2

Egmont Kakarot-Handtke

#1 Look for ‘Zero-sum capitalism
#2 See also ‘Economics, Plato’s Cave and the Silver Blaze Case


Related 'Needed: The Worst of the Worst of economics blogs'. For details of the bigger picture see cross-references Political economics

July 17, 2017

You are fired!

Comment on Barkley Rosser on ‘Those Of You Who Are Old Enough Will Really Get This’

Blog-Reference and Blog-Reference and Blog-Reference

(i) Barkley Rosser reports: “I am adding yet more to my most recent two posts where I am complaining about this essentially side remark that Larry Summers made in his commemoration of his late uncle, Kenneth Arrow, in which he reports that at the party celebrating Arrow’s Nobel Prize in 1972, Summers’s other uncle, the late Paul Samuelson was supposedly ‘discussing how stupid Joan Robinson was’.”

The geniality of Joan Robinson is engraved in everlasting granite with this verdict about economics: “Scrap the lot and start again.”

To her fellow economists she referred as ‘throng of superfluous economists’. Indeed, this is their track record: PROVABLE false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1947.

The throng of superfluous economists has not realized that the core of economics ― profit theory ― is false since Adam Smith.

(ii) Most famous example: Keynes. This is the piece of evidence from the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips 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.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false. This holds also for Walrasianism, Marxianism, Austrianism.

(iii) All errors and misinterpretations are eliminated by turning to mathematical formalism and graphical representation.

(a) National accounts, pure consumption economy, two sectors, initial period C=Yw, consumption expenditures = wage income
(b) National accounts, dissaving C > Yw, consumption expenditures greater than wage income, profit Qm = dissaving -Sm (with Qm≡C-Yw, Sm≡Yw-C, Qm+Sm=0 or Qm=-Sm)
(c) National accounts, saving C < Yw, consumption expenditures less than wage income, loss -Qm = saving Sm

The national accounts tell one important thing: profit is NOT the income of capital but the mirror image of dissaving, i.e. the household sector’s increase of debt.

(iv) From the accounting graphics it is immediately obvious that Keynes’s foundational identity “Income = value of output” is false. This seemingly commonsensical identity is the biggest methodological blunder in all of economics because it led ― among other errors/ mistakes ― to the treatment of profit as income of capital.

Because the profit theory is false since Adam Smith ― “... one of the most convoluted and muddled areas in economic theory: the theory of profit” (Mirowski) ― economics became the failed science that it is today.

(v) The scientific incompetence of the representative economist is documented by the fact that he cannot tell the difference between profit and income until this very day. The ‘throng of superfluous economists’ has NO idea of the foundational concepts of their subject matter. From the freshman to the Nobel Laureate it is just proto-scientific blather.

Joan Robinson realized this and told the world. Now it is time to get rid of these folks.

Egmont Kakarot-Handtke


Related 'How economists habitually mess it up' and 'Macro for dummies' and 'The real problem with the economics Nobel' and 'We are not yet out of the wood; in fact, we are not yet in it' and 'Economics is not a science, not a religion, but proto-scientific rubbish' and 'How Arrow pushed economics over the cliff' and 'New Economic Thinking: the 10 crucial points'

***
REPLY to anne on Jul 17

For more on Joan Robinson see:
Joan Robinson and the ‘throng of superfluous economists
Let’s do it
Habermas, Albert, Robinson, Syll are right — now scrap the crap
The overdue public clarification of economics’ actual scientific state
Will economics ever become a science?

***
REPLY to ProGrowthLiberal on Jul 17

See 'The futile attempt to recycle Sraffa'

***
REPLY to ProGrowthLiberal on Jul 17

The Economics God Equation fully replaces Sraffa’s akward “real” construct. Note that there is NO profit in a “real” economy. Seems to have escaped you since Econ 101.


***
REPLY to Barkley Rosser on Jul 18

The consistency with which you grab into the toilet is remarkable. Joan Robinson said TWO correct things, which is TWO MORE than Arrow, Samuelson, Summers e tutti quanti ever said:
  • “Scrap the lot and start again.”
  • “An excess of saving over the value of investment is therefore a loss to firms … and an excess of investment over saving is an undistributed profit to the firms …”#1
So, Joan Robinson got macro accounting almost right (see also case (iii) c above) but did not see the significance for profit/capital theory and fell back to vacuous microeconomic argumentation.#2

Stupid as ever, you cited the 'wrong' Joan Robinson.

#1 For details see ‘Keynes’s Missing Axioms’ p. 21, references
#2 For the correct capital theory see ‘Squaring the Investment Cycle

***
REPLY to Barkley Rosser on Jul 18

You say: “If she said the second, you will need to show where, troll, although she probably would say that it is often the case, as it is, but not one that necessarily holds in general.”

Learn reading. I gave you the source already above with the baby spoon: #1 For details see ‘Keynes’s Missing Axioms’ p. 21, references

There you will find the original source: Robinson, J. (1956). The Accumulation of Capital. London: Macmillan. Page 402.

Perhaps there is a brilliant mind in your circle of blather buddies who can read it aloud for you.

July 16, 2017

How economists habitually mess it up

Comment on Bradford DeLong on ‘How to Think Like an Economist’

Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed science. 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.#1

Economists are well aware of the stagnation of economics: “... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower) Economists, though, do not locate the reasons for failure in themselves but in the specifics of their subject matter. These explanations have to be taken for what they are: as excuses.#2, #3, #4

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.#5

Bradford DeLong argues: “While economics is not a natural science, it is a science — a social science.” False. Economics is a system science.

Therefore “… to understand people you have to get inside their heads: understand their hopes, fears, desires, reasoning, plans, expectations, and actions” is NOT AT ALL the business of economics. This is the subject matter of psychology, sociology, anthropology, political science etcetera.

The business of the economist is to figure out how the economic system behaves and how the economic phenomena and variables are structurally interrelated. In an analogy: economics is not about the motives/behavior/action of passengers/crew on an airplane but about how flight is possible.

Bradford DeLong explains why economist have always three answers for any question: “The major reason is that different people have different views of what makes a free, a good, a just, or a well-ordered society.”

Note well that the question about the good society is a political question that has to be answered in the political realm and NOT in the scientific realm. John Stuart Mill was quite explicit about the separation of politics and science: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

The main reason why economics is a failed science is that economists are not scientists but agenda pushers. There are TWO economixes: 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.

Economics has been hijacked 200+ years ago by agenda pushers. Political economists have not figured out until this day how the market economy works.#6

Economists do not need a prescription ‘How to Think Like an Economist’ but an idea how to get out of the self-created proto-scientific mess.

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
#2 Economists and their silly excuses
#3 Failed economics: The losers’ long list of lame excuses
#4 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
#5 First Lecture in New Economic Thinking
#6 Macro for dummies


Immediately following 'New Economic Thinking: the 10 crucial points'

July 15, 2017

Don Lars and the axiomatic windmill

Comment on Lars Syll on ‘Why testing axioms is necessary in economics’

Blog-Reference and Blog-Reference

Lars Syll writes often about the axiomatic-deductive method but it is painfully obvious that he simply cannot get his head around it.

(i) He writes: “For although the economist himself (implicitly) claims that his axiom is universally accepted as true and in no need of proof, that is in no way a justified reason for the rest of us to simpliciter accept the claim.”

It is simply a silly misunderstanding that axioms have to be universally accepted as true. Axiomatization works as follows: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)#1

Repeat: No claim of truth is implied in the term ‘axiom’ as here used. A set of axioms is the point to start with and it is taken as tentatively true. Nobody starts intentionally with false axioms. To establish the empirical truth of a properly axiomatized theory is understood as the indispensable complementary task of the scientific enterprise: “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)

Axioms must satisfy certain formal properties, e.g. independence and consistency.

(ii) It is misleading to retell again and again that ‘axioms must be universally accepted as true’. This has NEVER been the case and the best example is Euclid’s famous fifth postulate: “For two thousand years, many attempts were made to prove the parallel postulate using Euclid’s first four postulates. The main reason that such a proof was so highly sought after was that, unlike the first four postulates, the parallel postulate is not self-evident.”#2

(iii) It is also misleading to retell again and again that “… of course, the rejection of the parallel postulate (or axiom) did come from empirical tests showing that it does not hold in space-time in general due to gravity curving it.” (Rosser)

It was just the other way round. Non-Euclidean geometry had been developed well before relativity theory by mathematicians (Lobachevsky, Bolyai, Gauss, Hilbert, Rieman, Poincaré etc). Without non-Euclidean geometry Einstein could not have formulated relativity theory. It is well known by now that he was not particularly good at math.

(iv) With regard to testing it holds as a matter of course: “Whether an axiom is or is not valid can be ascertained either through direct experimentation or by verification through the result of observations, or, if such a thing is impossible, the correctness of the axiom can be judged through the indirect method of verifying the laws which proceed from the axiom by observation or experimentation. (If the axiom is deemed to be incorrect it must be modified or instead a correct axiom must be found.)” (Morishima)#3

(v) This, of course, holds also for the Walrasian axioms, which are given as follows: “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)

Now it should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. In practical terms: as soon as the word equilibrium/disequilibrium appears in an economic paper it can be thrown into the waste basket. The same holds for utility maximization and all other nonentities. This simplifies matters considerably.

(vi) Up to this point the critique of mainstream economics is on the right tract but then it exhausts itself in futile repetition. There is no ambition to move forward and to tackle the paradigm shift. Thus, economics got stuck in the pluralism of false theories/models.

(vii) Fact is that Walrasianism is a failed approach, so there is no longer any need to test it. What is urgently needed is a replacement. What has to be done is to move from obsolete microfoundations to macrofoundations.

(viii) This is the (tentatively) true set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.#4

These axioms are objective, behavior-free, certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is minimal, that is, it cannot be reduced further, only expanded. The set contains no longer nonentities like maximization or equilibrium and no normative assertions.

(ix) Lars Syll concludes: “If theories and models do not directly or indirectly tell us anything of the world we live in ― then why should we waste any of our precious time on them?” True, but the same holds for the critique of mainstream economics.#5 The four main approaches are known to be axiomatically false and the sooner they are replaced and forgotten the better.

Egmont Kakarot-Handtke

#1 See also ‘Keynes, Euclid, and economic methodology
#2 Wikipedia Parallel postulate
#3 See also ‘Methodological wrong-way drivers
#4 See ‘How to restart economics
#5 See also ‘How the mainstream vanished in the gutter

July 13, 2017

Macro for dummies

Comment on Peter Cooper on ‘Short & Simple 7 ― A Fundamental National Accounting Identity’

Blog-Reference

The heteconomist Peter Cooper maintains: “Since every act of spending results in income for somebody else, total spending for the economy as a whole equals total income. This is true by definition and is a basic building block in macroeconomics.”

Both, orthodox and heterodox economists subscribe to this statement as the self-evident rock bottom truth of all of economics. Too bad that this statement is materially/logically false.

The foundational error/mistake/blunder consists in the methodological fact that the two most important magnitudes of economics — profit and income — are ill-defined.#1 In order to see this one has to go back to the MOST ELEMENTARY configuration, that is, the pure consumption economy which consists of the household and the business sector.#2

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

In case (i) the monetary saving of the household sector Sm≡Yw-C is zero and the monetary profit of the business sector Qm≡C-Yw, too, is zero. The product market is cleared, i.e. X=O.
In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It always holds Qm+Sm=0 or Qm=-Sm, in other words, at the heart of the monetary circuit is an identity: the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law. It follows directly from the profit definition Qm≡C-Yw and the definition of household sector saving Sm≡Yw-C.

Loss or profit are NOT income. Only distributed profit is income. The profit theory is false since Adam Smith.#3

Economists are too stupid for the elementary mathematics of accounting.#4 The statement total income equals total spending is simply false because of the all important phenomenon of credit. Equipped with credit the household sector can spend MORE than its period income (= dissaving in accounting terms) or in the opposite case LESS (= saving).

Egmont Kakarot-Handtke

#1 For details see ‘How the Intelligent Non-Economist Can Refute Every Economist Hands Down’ and ‘Keynes’s Missing Axioms’ Sec. 14-18
#2 The elementary consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start holds X=O.
#3 See ‘Essentials of Constructive Heterodoxy: Profit’ and cross-references Profit
#4 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach


Related 'Macro for dummies (i)' and 'A crash course in macro accounting' and 'Settling the Theory of Saving' and 'Profit theory in less than 5 minutes' and 'Economists: scientists or political clowns?' and 'You are fired!'

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REPLY to SDB on Jul 14

You say: “It’s logically impossible for any spending to not ‘go somewhere’ and result in income somewhere else.”

This is the usual vague blather.

The pure consumption economy is for a start clearly defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C-Yw, Sm≡Yw-C). No vagueness here.

The condition C=Yw says that consumption expenditures C are initially equal to wage income Yw. Or in the words of Peter Cooper: total spending is equal to total income.

Now it is logically and practically possible that consumption expenditures C are LESS than wage income Yw, i.e., total spending is NOT equal to total income.

What happens in the two sectors follows from the definitions. For the business sector it holds Qm≡C-Yw. Clearly, Qm bears here a negative sign (C less than Yw), which means the business sector makes a loss.

It is pretty obvious that the firm’s loss is something quite different from income. Wage income is a flow from the business sector to the household sector. Loss is the DIFFERENCE of two flows. Methodologically, it is NOT admissible to use the same term for entirely different phenomena. So it is inadmissible to speak of loss as a type of income. This blunder is called category mistake.

With ‘loss income’ this is clear because it sounds already weird. But it is also inadmissible to speak of ‘profit income’ because profit, too, is the difference of flows, i.e. C-Yw, and not a flow like wage income Yw. Wage income and profit are NOT two different forms of income.

So the blunder of the representative economist consists in confusing a balance with a flow.

The parallel to wage income is distributed profit income or dividend. Needless to emphasize that the representative economist cannot tell the difference between profit and distributed profit either.

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TAKE-AWAY for non-economists on Jul 14

The fact that the simple statement ‘Total spending equals total income’ is still a commonplace in economics has far reaching implications.

(i) In 200+ years economists have NOT figured out that the statement is false. This is a straight metric of scientific incompetence.

(ii) Since 200+ years the two fundamental economic concepts ― profit and income ― are ill-defined. By consequence, all theories/models that contain these concepts are false. In other words, the whole analytical superstructure of economics is false.

(iii) This applies to the four main approaches Walrasianism, Keynesianism, Marxianism, Austrianism. Economics, therefore, is nothing but the mutually accepted pluralism of provable false theories.#1 Economics lacks the true theory.

(iv) This applies also to National Accounting#2 which is lethal because National Accounting is pivotal for empirical testing. The correct FUNDAMENTAL IDENTITY of National Accounting is NOT spending = income but Qm+Sm=0 or Qm=-Sm, in other words, the business sector’s deficit (= loss) equals the household sector’s surplus (= saving) and vice versa, i.e. profit = dissaving.

(v) The claim that economics is a science is false and amounts to a misguidance of the general public and the government bodies that are responsible for economic policy.#3

#1 For more details see
How Keynes got macro wrong and Allais got it right
Tricky business
Where MMT got macro wrong
Heterodoxy, too, is scientific junk
#2 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#3 See ‘Economics is not a science, not a religion, but proto-scientific rubbish

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REPLY to SDB on Jul 14

(i) You say: “As best I can tell EKH is confusing a simple barter model for the real world.” The confusion is obviously on your side: (i) the title of this thread explicitly talks about National Accounting, (ii) National Accounting is about NOMINAL magnitudes, NOT real magnitudes, (iii) from all magnitudes that appear in the formal description of the pure consumption economy FOUR reappear in National Accounting, viz. C,Yw, Qm, Sm.#1

(ii) The pure consumption economy is NOT a barter model but the simplest possible instantiation of what Keynes called the ‘monetary theory of production’.#2

(iii) You say “profit is simply a mark-up over cost”. This microeconomic definition translates for the consolidated business sector into the MACRO equation Qm≡C-Yw.

(iv) You say “Perhaps one might ask where the money comes from to pay for the profits above costs?” Indeed, this question has been asked and already answered: “In order that profit comes into existence for the first time in the pure consumption economy the household sector must run a deficit at least in one period. This presupposes the existence of a credit creating entity.”#3

Fact is that you are ill-informed and way behind the curve. Your best is simply not good enough.

#1 The pure consumption economy is for a start defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C-Yw, Sm≡Yw-C).
#2 See ‘The irreparable unreality of all ‘real’ models
#3 See ‘Essentials of Constructive Heterodoxy: Profit’ p. 7

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REPLY to Magpie on Jul 15

You say: “To paraphrase: So the blunder of Egmont Kakarot-Handtke consists in confusing a balance with a flow.”

You are simply ill-informed. There are two balances of flows: X-O the difference between quantity X sold and and quantity produced O per period. This balance changes the inventory = real stock. The other balance is C-Yw, i.e. the difference between consumption expenditure C and wage income Yw. This balance changes the stock of money. The stock increases in the case of saving, i.e. C - Yw greater zero, and decreases it in the opposite case of dissaving.

Mathematically it holds: the business sector’s stock of products and the household sector’s stock of money is determined by the sales ratio (X/O) and the expenditure ratio (C/Yw). So the relation of stocks (numerical integrals) and ratios (numerical derivatives) is well defined for the case of discrete flow variables.#1

Your gloating [Considering that Michal Kalecki is credited with the witticism that economics is the science of confusing stocks with flows, one can conclude that Egmont Kakarot-Handtke truly is a practitioner of scientific economics. :-)] is premature.

For my take on Kalecki see the cross-references.#2

#1 See ‘Primary and Secondary Markets’ Section 2 (Residuals and the emergence of stocks)
#2 Cross-references Kalecki

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REPLY to Tom Hickey on Jul 15

You say: “In scientific modeling, which economic purports to do, fundamental assumptions are stated and key terms define in terms of the model being constructed. … Economists adopt different assumptions and define key terms differently.”

And here you have it: the muddle heads of economics define what they please without taking care whether the definitions fit consistently together. In economics, Humpty Dumpty calls the shots: “’When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all’.”

And this is why economics is since 200+ years not more than confused blather. Not even the foundational concepts profit and income are properly defined. This is like medieval physics before the concept of energy was defined and understood. The representative economist does not understand what profit is and has never realized that the statement ‘total spending for the economy as a whole equals total income’ is abysmal logical crap.

Science proceeds differently. The foundational concepts including the dimensions of the magnitudes are consistently defined: “The most basic rule of dimensional analysis is that of dimensional homogeneity.”#1

The tried and tested means to establish coherent talk and dimensional homogeneity is since 2000+ years axiomatization: “The often heard rule that concepts are to be defined before they are used in a discussion is much too simple minded pre-Hilbertian. The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)

And here you have it: The pure consumption economy is for a start clearly defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C-Yw, Sm≡Yw-C).#2

The axioms and definitions can be reduced to one equation, the First Economic Law#3, which is dimensionless and satisfies the Buckingham π theorem.#4

You say: “Profit is a weasel word”. Did it never appear to you that this is the most damning characterization of economics? The first thing scientists do is to eliminate weasel words. Economists have not achieved this in the past 200+ years. They are simply too stupid for consistent scientific modeling.

#1 Wikipedia Dimensional analysis
#2 For the complete verbal and graphics supported description of the pure consumption economy see ‘How the intelligent non-economist can refute every economist hands down
#3 Wikimedia First Economic Law
#4 Wikipedia Buckingham π theorem

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REPLY to Magpie on Jul 15

You say: “Answer this extremely simple question.”
(i) Loss is the DIFFERENCE of two flows.
(ii) If loss, as you clearly wrote above, is not a flow, then what on earth is it? (A stock? … If it’s not a flow then it must be a stock.)

Wage income Yw is a flow from the business to the household sector. Consumption expenditure C is a flow from the household to the business sector. Loss is the difference of these two flows Qm≡C-Yw if C is less than Yw. Loss diminishes the stock of money of the business sector.

So we have the flow, the difference of flows and the change of stock. Loss is so to speak the first derivative of the stock of money. Or, vice versa, the stock of money of the business sector is the numerical integral of loss/profit.

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REPLY to SDB on Jul 16

(i) You say: “… after accumulation of savings is widespread, then profit of the business sector/dissaving of the household sector can occur without a change in the stock of money. Yes? It’s a shift if deposit balances from the household to the business sector, with no change in the stock of money.”

No. In the simplest case money consists of the debit side of the central bank’s balance sheet. If the household sector dissaves profit of the business sector goes up and BOTH sides of the central bank’s balance sheet get longer by the SAME amount. Money has been dealt with elsewhere at length.

(ii) You say: “I still don’t understand your problem with the notion that total spending = total income.”

Start with total spending C = total wage income Yw. In the next period the household sector takes up credit from the central bank and total spending C is greater than wage income Yw. So the statement total spending = total wage income is obviously not generally true.

What happens is that the profit of the business is now Qm≡C-Yw. But profit (or loss as the case may be) is NOT income so the statement total spending = total wage income changes for the GENERAL CASE to total spending C is numerically equal to total wage income Yw plus/minus profit/loss Qm (to recall Yw is a flow, Qm is a balance).*

From the accountant’s perspective only Qm≡C-Yw is the 100 percent correct statement, i.e. if spending C is equal to wage income Yw profit is zero, otherwise there is a profit or loss. Everything else is layman’s babble.

* See also the Figure 5 in ‘Keynes’s Missing Axioms’ p. 25

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REPLY to Magpie on Jul 16

You say: “If flows are like first derivatives, so to speak, as you say, then one should expect of them that they can be added and subtracted: first derivatives, I'm sure you know (don’t you?) are additive.”

First of all, I do NOT say ‘flows are like first derivatives’. Time to learn reading!

In economics we are in the world of discrete variables. And because there are no underlying continuous and differentiable functions we speak in analogies. So the stock of money of the business sector is the numerical integral = sum of discrete period values of profit/loss. Profit/loss, i.e. the change of the stock of money, in turn is a difference of flows. The change of stock is ANALOGOUS to the first derivative (see the graphic in the working paper Primary and Secondary Markets.)

I do NOT say ‘flows are like first derivatives’ I say ‘difference of flows are like first derivatives’.

Needless to emphasize that the formalism of calculus does NOT one-to-one apply to discrete period variables. This does not matter at all because the analogy holds.

So we have the flow, the difference of flows = the change of stock, and the stock, that is, we have perfect stock-flow consistency for discrete variables.

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REPLY to SDB on Jul 16

You ask: “Why is profit not income for the business sector?”

To say profit is income for the business sector is like saying a whale is a fish. It is simply scientifically incorrect.

If you subscribe to anything-goes and freedom of speech and the human right of ignorance you can say profit is income of the business sector, if you subscribe to scientific principles (material/formal consistency, dimensional homogeneity) you cannot. To lump income (= flow) and profit (= difference of flows = accounting balance) together is a category mistake.

The fact that the representative economist cannot until this very day tell the difference between profit and income is the proof of utter scientific incompetence since 200+ years.*

* See also ‘Economists: scientists or political clowns?

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REPLY to SDB on Jul 16

(1) I have translated the argument into accounting. It is self-explanatory:

(a) National accounts, two sectors, initial period C=Yw, consumption expenditures = wage income
(b) National accounts, dissaving C > Yw, consumption expenditures greater than wage income, profit Qm = dissaving -Sm
(c) National accounts, saving C < Yw, consumption expenditures less than wage income, loss -Qm = saving Sm

(2) You ask “So do you prefer the edit: total spending = total revenue? (instead of total spending = total income).”

Absolutely. From the perspective of the household sector C is total spending, from the perspective of the business sector C is total total revenue. The accounts make it clear that this is ALWAYS the case because it is two views of the same thing.

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REPLY to wilwon32 on Jul 17

(i) You are right, the definitions of terms can easily degenerate into wordplay and give rise to misinterpretation. For example:
• TRUE Total spending (of the household sector) is total total revenue (of the business sector).
• FALSE Total spending for the economy as a whole equals total income.
• FALSE Income = value of output.

It is the second statement which has become known as fundamental accounting identity. This is the exact point where the whole of macro went wrong.

(ii) Most famous example: Keynes

This is the piece of evidence from the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips 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.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false. This includes MMT.*

(iii) All language problems are eliminated by turning to mathematical formalism and/or graphical representation.

(a) National accounts, pure consumption economy, two sectors, initial period C=Yw, consumption expenditures = wage income.
(b) National accounts, dissaving C > Yw, consumption expenditures greater than wage income, profit Qm = dissaving -Sm (with Qm≡C-Yw, Sm≡Yw-C, Qm+Sm=0 or Qm=-Sm).
(c) National accounts, saving C < Yw, consumption expenditures less than wage income, loss -Qm = saving Sm.

The balances Qm and Sm change and redistribute the stock of money in the economy and are the interface to the theory of money. The accounts establish the logical connection between flows, the difference of flows = the change of stock, and the stock of money.

(iv) From the accounting graphics it is immediately obvious that Keynes’s foundational identity “Income = value of output” is false.

This seemingly commonsensical identity is the biggest methodological blunder in all of economics because it led to the treatment of profit as income of capital.

Because the profit theory is false since Adam Smith ― “... one of the most convoluted and muddled areas in economic theory: the theory of profit” (Mirowski) ― economics became the failed science that it is today.

(v) The scientific incompetence of the representative economist is documented by the fact that he cannot tell the difference between profit and income until this very day. Economists have NO idea of the foundational concepts of their subject matter.

* Where MMT got macro wrong

July 12, 2017

Note on Amy Willis ‘Can majoring in philosophy make you a better person?’

Blog-Reference

Amy Willis argues: “Philosophy is the foundational discipline since it inquires into reality, truth, goodness and beauty, the objects of metaphysics, epistemology, ethics, and aesthetics, as well as social and political philosophy. Adam Smith was a professor of philosophy, and Karl Marx had a doctorate in philosophy.”

This is only half true. Philosophy is also the foundational discipline of storytelling, sophistry, blather, and what later became social sciences/PR/propaganda/sitcom.

Smith and Marx are the iconic storytellers of economics: “… in fact 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)

Wikipedia says about Marx’s doctorate in philosophy: “Marx decided, instead, to submit his thesis to the more liberal University of Jena, whose faculty awarded him his PhD in April 1841.” Wikipedia fails to notice that Marx’s promotion was “in absentia”. This was the more liberal specialty of Jena to attract students.

“Hier bestand die Neuerung in der sogenannten „promotion in absentia“, die bis ins späte 19. Jahrhundert an vielen Universitäten nicht nur möglich, sondern fast der Regelfall war. Bei dieser Art der Promotion wurde auf die Disputation verzichtet. Weniger diplomatisch formuliert: Man konnte sich den Titel kaufen.”#1

In plain English, Marx bought the title. So the answer to ‘Can majoring in philosophy make you a better person?’ is NO ― neither a better person nor a better economist.#2

Egmont Kakarot-Handtke

#1 Deutsche Universitätszeitung
#2 See ‘Marx, the moron

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REPLY to MRW on Jul 12

You say “Copernicus, a Polish monk with little astronomical experience, picked up important Islamic documents in Italy and claimed them as his own.”

(i) “Copernicus was born and died in Royal Prussia, a region that had been part of the Kingdom of Poland since 1466.”* The Kingdom of Poland is something quite different from what is today called Poland.

(ii) Copernicus was not exactly a monk either: “Copernicus was his uncle’s secretary and physician from 1503 to 1510 and resided in the Bishop’s castle at Lidzbark (Heilsberg), where he began work on his heliocentric theory. In his official capacity, he took part in nearly all his uncle’s political, ecclesiastic and administrative-economic duties. From the beginning of 1504, Copernicus accompanied Watzenrode to sessions of the Royal Prussian diet held at Malbork and Elbląg and, write Dobrzycki and Hajdukiewicz, ‘participated... in all the more important events in the complex diplomatic game that ambitious politician and statesman played in defense of the particular interests of Prussia and Warmia, between hostility to the [Teutonic] Order and loyalty to the Polish Crown.’”*

(iii) “Aristarchus of Samos (ca. 310 BCE – ca. 230 BCE) was the first to advance a theory that the earth orbited the sun.”*

* Wikipedia

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REPLY to Ben Johannson on Jul 12

For somebody who reads “Epictetus and Marcus Aurelius every single day” you are extremely retarded.

The point at issue is NOT whether “philosophy provides a path to bettering one’s self” but whether “majoring in philosophy make you a better person”.

Majoring at the University of Chicago makes NO better persons or economists just like majoring at Trump University.

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REPLY to Matt Franko on Jul 12

You say: “STEM students don’t have time for Philosophy... too busy on math and science training”.

Tradition has it that this phrase was engraved at the door of Plato’s Academy: “Let no one ignorant of geometry enter”.

For the ancient Greeks held: philosophy = science = math. Today we have philosophy = sitcom blather.

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TAKE-AWAY on Jul 12

Philosophy did not help much in economics, just the contrary, it is the ultimate cause that economics is still at the proto-scientific level.

Fact is that economists ― Walrasians, Keynesians, Marxians, Austrians ― never understood what science is all about.*

* See ‘Economics is not a science, not a religion, but proto-scientific rubbish

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REPLY to Ben Johannson on Jul 13

Utilitarianism is the natural philosophy of most people. Utilitarianism asks what is it good for? Acceptable answers are: because it makes me a better person, is fun, is healthy, makes me happy, maximizes well being/welfare, is good for my family/community/country, guarantees me a place in heaven, saves humanity.

Now, the very characteristic of philosophy is that it is NOT a wellness activity but the quest for something called truth without knowing what it is or whether it exists. Because the outcome is not known the question what is it good for is senseless. No serious philosopher promises to make anybody a better person. This is traditionally the claim of priests and gurus.

The philosopher Nietzsche, for example, arrived after a very long quest at this conclusion: “I teach you the overman. Man is something that shall be overcome. What have you done to overcome him? All beings so far have created something beyond themselves; and do you want to be the ebb of this great flood and even go back to the beasts rather than overcome man? What is the ape to man? A laughingstock or a painful embarrassment. And man shall be just that for the overman: a laughingstock or a painful embarrassment...”.

People who regard philosophy as a means to become better in the University of Chicago sense are a painful embarrassment for philosophers: “The earth has become small, and on it hops the last man, who makes everything small. His race is as ineradicable as the flea; the last man lives longest.”

To which the utilitarian philosopher answers: “One has one’s little pleasure for the day and one’s little pleasure for the night: but one has a regard for health. ‘We have invented happiness,’ say the last men, and they blink.”

Philosophy has no use value beyond itself and is therefore a NO-GO for economists who take utility maximization as their first axiom. All the more so, as economists in their bottomless incompetence have until this day not figured out how the economy works.* First things first is the first principle of practical philosophy.

* See ‘We are not yet out of the wood; in fact, we are not yet in it

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REPLY to Tom Hickey on Jul 13

Roughly speaking, there are three realms: politics, science, and philosophy.

Science is well-defined: “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)

Whether the Arabs or the Greeks or somebody else has invented/developed science is a secondary question.

Scientific and philosophical thinking is characterized by the fact that the outcome is unknown: “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)

From this follows that science and philosophy on the one hand and politics on the other have to be strictly separated. And this is exactly how John Stuart Mill defined economics: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

This, though, is not what has happened. 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.

The state of economics is this: theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. As a result of the utter scientific incompetence of political economists economics is a failed science.#1

Something similar has happened with philosophy. Philosophy is thinking about the first and the last things and has no use value beyond itself. The attempt of politics/social engineering to use philosophy for the education of better humans which are better able to participate in a well-functioning society is, strictly speaking, an abuse of philosophy. Needless to emphasize that many philosophers volunteered for this job. Socrates was one of them.

What genuine philosophers and scientists strive for is to get ALL political agenda pushers off their back. Politics and science/philosophy have to be strictly separated. This holds first and foremost for economics.#2 So, right wingers and left wingers and liberals and conservatives and freemarketers and communists and what not, for ALL of you the time has come to leave.

#1 See ‘Economics is locked in idiocy: How could this happen?’ and ‘Economics between cargo cult, farce, and fraud
#2 See ‘Scientific suicide in the revolving door

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ADDENDUM Credit where credit is due on Jul 14

It seems that it is the Hindus who have to be given credit for the invention of science/ mathematics: “Who developed algebra, Trigonometry, our numeral system and the concept of Zero to give basis for the European scientific revolution? Despite some common wisdom misinformation it was mostly Hindu and Jain Mathematicians.”

See YouTube ‘An Islamic Golden Age or Appropriation of Hindu achievements ?

July 11, 2017

Economics is not a science, not a religion, but proto-scientific rubbish

Comment on John Rapley, TheGuardian, on ‘How economics became a religion’

Article-Reference and Blog-Reference on Jul 12 and Blog-Reference and Blog-Reference on Jul 13 and Blog-Reference on Jul 19

Economists tell the world each year in no uncertain terms that economics is a science by awarding this prize “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The claim is provable false. So, is it true that economics is some kind of worldly religion with economists as a priesthood, as John Rapley claims? No, economics is neither a science nor a religion but a cargo cult science. Failed scientists are something different from priests. What they have in common, though, is that they are both storytellers in the Circus Maximus.

Since Adam Smith/Karl Marx economists are in the state of incorrigible self deception: “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)#1

Fact is, there is no such thing as economics. There are TWO economixes: 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 have to be strictly adhered to.

Theoretical economics consists currently of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories. This means that economic policy guidance since the iconic storytellers Adam Smith/Karl Marx never had a sound scientific foundation.

Theoretical economics is scientifically unacceptable. But this does not matter much as long as it is politically usable. And this is always the case, because economics is a rummage table of opinions.

Fact is that economists simply do not know how the economy works. This is not a big issue as long as the economy keeps random-walking on the broad green carpet of acceptable or tolerable performance. It becomes an issue once the economy has landed in the ditch.

This, then, is the favorable moment to reposition economics. The claim to be a science goes first of all down the drain: “The hubris in economics came not from a moral failing among economists, but from a false conviction: the belief that theirs was a science. It neither is nor can be one, and has always operated more like a church. You just have to look at its history to realise that.” (Rapley)

Suddenly, after 140+ years, everybody becomes aware that the whole analytical superstructure of economics had been built upon false premises: “For starters, it rests on a set of premises about the world not as it is, but as economists would like it to be. Just as any religious service includes a profession of faith, membership in the priesthood of economics entails certain core convictions about human nature.” (Rapley)

What, then, are these premises? Orthodox economics is based upon the Walrasian axiom set = microfoundations: “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)

Obviously, this axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. However, this is the authoritative definition of economics: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, …” (Arrow)

The first thing to notice is that economics is ill-defined. Economics is not at all about Human Nature/motives/behavior/action ― this is the subject matter of psychology, sociology, anthropology and so on ― but about the nature/behavior of the economic system.#2 Methodologically, behavioral economics is the wrong approach because NO way leads from the understanding of human behavior to the understanding of how the actual economy works.

The four main approaches are axiomatically false and materially/formally inconsistent. What we actually have is the pluralism of false theories/models. Needless to emphasize that the pluralism of provable false theories is scientifically unacceptable.

Economics is NOT a science and neither orthodox nor heterodox economists are scientists. They have never been anything else than substandard thinkers, storytellers, and agenda pushers. Because the axiomatic foundations of both microeconomics and macroeconomics are false, all modern economics textbooks are false. This has nothing to do with religion or an economics priesthood but with manifest scientific incompetence.

Egmont Kakarot-Handtke

#1 See also ‘What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 See also ‘If it isn’t macro-axiomatized, it isn’t economics


Related 'All models are false because all economists are stupid' and 'Economics between science and magic' and 'Economics between physics and psychiatry' and 'Economists and the destructive power of stupidity' and cross-references Incompetence