September 20, 2017

Solving Mill’s starting problem

Comment on Peter Cooper on ‘State Monies are Fundamental to Modern Monetary Economies’

Blog-Reference

After 20 posts about the MMT balances equations and the income-expenditure model, Peter Cooper gets second thoughts and asks himself: “What is the most appropriate entry point to the study of a monetary economy.” And he concludes “There is no ‘natural’ field in economics that is anything like the natural sciences.”

Each science starts in the middle of a swamp: “We are lost in a swamp, the morass of our ignorance. … We have to find the roots and get ourselves out! … Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion.” (Schmiechen)

The starting problem is as old as economics. J. S. Mill put it thus: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”

In economics, there are two starting points, microfoundations and macrofoundations. Both are provably false. Orthodoxy went micro: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman). Keynes went macro: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” MMT followed Keynes into the macro woods.

The methodologically correct solution consists in new macrofoundations.#2 Here they are:
(A0) The objectively given and most elementary systemic configuration of the (world-) 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.

These macro axioms satisfy all methodological requirements. The graphical representation of the elementary production-consumption economy is shown on Wikimedia.#3


The condition of market clearing is X=O and of budget balancing C=Yw. From non-clearing and non-balancing follow the phenomena of inventory changes (O-X greater than 0 or less than 0) and of monetary saving/dissaving (Sm≡Yw-C greater than 0 or less than 0) and of monetary profit/loss (Qm≡C-Yw greater than 0 or less than 0). It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.

The Profit Law tells us immediately that the Keynesian macrofoundations and the MMT balances equations are false. And because the axiomatic foundations are false the whole analytical superstructure of MMT is false.#4

Poincaré once remarked: “The essential thing is to learn to reason with the axioms once admitted. Uncle Sarcey, who loved to repeat himself, often said that the audience at a theatre willingly accepts all the postulates imposed at the start, but that once the curtain has gone up it becomes inexorable on the score of logic.”

It is just the same in economics but economists in general and MMTers, in particular, neither got the foundational postulates right nor the subsequent logic. What unfolds before the audience's eyes is an absurd proto-scientific farce.

Egmont Kakarot-Handtke

#1 Getting out of the economics swamp
#2 The new macroeconomic paradigm
#3 Wikimedia: The pure production-consumption economy
#4 For more details see cross-references MMT

***
REPLY to Matt Franko on Sep 20

You say: “Accounting is its own science... here in the US the good schools award a Bachelor of SCIENCE in Accounting.”

Obviously, MMTers got their BSAcc from Trump University.#1

You say: “If you are in business, You may use a Cash Basis accounting method and someone else might use an Accrual Basis, you can’t say ‘your accounting is false!’ to the other guy using Accrual...”

I do NOT say such nonsense. Both methods lead ultimately to the same result.#2 Cash Basis accounting is merely a practical relief for small firms that shifts profits BETWEEN periods but does NOT alter the sum of pre-tax profit over all periods. The difference between the business accounting methods plays NO role for macroeconomics. As a matter of principle, profit is NOT produced by accounting only measured, just like speed is NOT produced by the speedometer only measured. Different methods of measurement do NOT affect a vehicle’s speed and should always give the SAME result (+- a tiny inaccuracy). If they do not, something is wrong with the measurement tools.

Macroeconomic profit is clearly defined, i.e. as Qm≡C–Yw in the most elementary case, and measurable with the accuracy of two decimal places. The macro balances equations of MMT are mathematically false#3 and this has NOTHING AT ALL to do with the practical determination of taxable profit of an individual firm.

If accounting and money transactions were fully computerized and all firms apply the accrual method the sum of all firms’ profits/losses is necessarily equal to macroeconomic profit Qm and everyone could look this number up in real-time on the internet. Cash Basis accounting is not “false” it is merely a stone-age method for the mom-and-pop store. As a matter of principle, National Accounting is as good a measurement tool as any simple tool in physics.

Fact is that neither orthodox nor heterodox economists have noticed the macro accounting blunder until this day. Economics is a failed science because economists are scientifically incompetent and do not even get the elementary mathematics of macro accounting right.#4

Make no mistake, what Mitchell, Tcherneva‏, Mosler, Wray, Kelton, Fullwiler, Forstater, and the other MMTers propagate is Trump University economics.

#1 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#2 See ‘MMT ― the economics moron as problem solver
#3 Rectification of MMT macro accounting
#4 For the details see cross-references MMT

***
REPLY to Matt Franko on Sep 20

(i) Wordplay does not help. 2+2=5 is mathematically false. The same holds for the MMT balances equations. For the proof see #1.

(ii) Monetary profit is measured by accounting and if the accounting is properly done for an elementary production-consumption economy profit in the books is numerically identical with cash in the box.#2 Auditors carry out this check routinely. The macroeconomic Profit Law is testable just like the Law of the Lever. There is NO room for ambiguity and wordplay.

(iii) You say: “You can have production (real terms) without any accounting but you can’t have profit without accounting.” So what? Counting the inventory is part of the year end profit determination.

(iv) Profit is not ‘created’ by accounting but by private and public deficit spending. For the economy as a whole it holds: Public Deficit = Private Profit.

(v) Profit does not appear in the MMT balances equations.#3 How weird is this? The MMT balances equations hold only for a zero profit economy. How weird is this?

(vi) Macro profit does not appear in macro models. It is absent in all I=S/IS-LM models since Keynes/Hicks. How weird is this?#4

(vii) Folks who cannot handle the pivotal concept of their subject matter and are too stupid for the elementary mathematics of accounting get economics diplomas and academic tenure. How laughable is this?

#1 Rectification of MMT macro accounting
The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#2 A tale of three accountants
#3 MMT and the magical profit disappearance
#4 Heterodoxy, too, is scientific junk

September 19, 2017

The new macroeconomic paradigm

Comment on Brian Romanchuk on ‘DSGE Wars (Again)’

Blog-Reference and Blog-Reference adapted to context and Blog-Reference

(i) Every economist knows by now that DSGE is a failed approach. Strictly speaking, the microfoundations approach has already been dead in cradle 140+ years ago.

(ii) The microfoundations approach is defined by this axiom set: “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) Fact is that every model that contains just one of the axioms is false.

(iii) Because the microfoundations approach is axiomatically false a paradigm shift is imperative. Methodologically it holds: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle) The paradigm shift consists of the replacement of false premises, i.e. microfoundations, by true premises, i.e. macrofoundations.#1

(iv) This is the correct core of macroeconomic premises:#2
(A0) The objectively given and most elementary systemic configuration of the (world-) 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.

These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is MINIMALISTIC, that is, it cannot be reduced further, only expanded. The graphical representation of the pure production-consumption economy is given on Wikimedia.#3, #4


(v) The condition of market clearing is X=O and of budget balancing C=Yw. From non-clearing and non-balancing follow the phenomena of inventory changes (O-X greater than 0 or less than 0) and of monetary saving/dissaving (Sm≡Yw-C greater than 0 or less than 0) and of monetary profit/loss (Qm≡C-Yw greater than 0 or less than 0). It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.#5

(vi) Given the minimalist core propositions (A0) to (A3) one has to proceed top-down by successive DIFFERENTIATION until one arrives at the individual agent. Differentiation is the opposite of bottom-up or aggregation. The bottom-up = microfoundations approach has always been methodologically indefensible because it runs with necessity into the Fallacy of Composition.

(vii) Note that the macro axioms are composed of measurable variables. This is the precondition for testing the derived complex relationships = economic laws.

(viii) The correct systemic macrofoundations FULLY replace the false Walrasian microfoundations and the false Keynesian macrofoundations. There can be NO pluralism of axiom sets. For ALL economic research, the macroeconomic premises (A0) to (A3) are ABSOLUTELY necessary. It holds: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

#1 Keynes’s macrofoundations are false, see ‘How Keynes got macro wrong and Allais got it right
#2 For the complete set of macro axioms see Wikimedia


#3 Wikimedia: The pure production-consumption economy
#4 True macrofoundations: the reset of economics
#5 From the macro axiom set follow the Four Basic Economic Laws

September 18, 2017

New Economic Thinking = old scientific garbage

Comment on David Orrell on ‘Economyths: The Five Stages of Economic Grief’

Blog-Reference and Blog-Reference

Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous and had a lot of trouble with other gods, goddesses, and humans. To handle his problems, Zeus regularly fell back to chicanery, force, and violence.#1 Since antiquity, everybody “understands” Zeus and his actions.

Not much has changed since the ancient Greeks. Ninety-nine percent of human communication still consists of myth, storytelling, and psychologism. Storytelling and psychologism are scientifically worthless. The “explanation” consists of connecting phenomenological dots by simply imputing a plausible emotional motive (anger, greed, fear, jealousy, hubris, revenge, etcetera) to an assumed actor with extraordinary capabilities.

The characteristic of science is the rejection of storytelling and the insistence on material and formal consistency: “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)

The goal of science is the true theory. The true theory is the humanly best mental representation of reality. 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 foundational economic concepts profit and income wrong. Neither orthodox nor heterodox economists can explain how the economy works and why crises happen.

The methodologically proper measure to overcome scientific failure is a paradigm shift. This, though, is NOT what David Orrell proposes. Instead, he reinterprets the manifest scientific mess as a psychological problem and advocates therapy: “I’m sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.”

Needless to emphasize that David Orrell’s story of sickness and healing appeals very much to the ninety-nine percenters who can only understand what is presented in the accustomed sitcom format. Psychologism is the mode of explanation of morons for other morons. Psychology, to recall, is a so-called social science and the so-called social sciences have been debunked by Richard Feynman as cargo cult science.

Economics is a system science and the functioning of the economic system has to be explained without recourse to psychological concepts like utility or greed.#2

Economics is a failure ― NOT a psychological or communicative failure but a scientific failure ― and the ultimate cause is not some psychological defect but utter scientific incompetence. Both orthodox and heterodox economics has never been more than storytelling. There is neither material or formal consistency. The representative economist can until this very day not tell what profit is.#3 This is like medieval physics before the concept of energy was properly understood.

Economists have no mysterious psychological disorder, they are fake scientists.#4 This scourge cannot be overcome with therapy but only with the immediate expulsion of economists from the sciences.

Egmont Kakarot-Handtke

#1 Wikipedia, Zeus
#2 First Lecture in New Economic Thinking
#3 Why economists don’t know what profit is
#4 CORE: more lipstick on the dead economics pig


Related 'Why is economics such a scientific embarrassment?' and 'Economics: the emancipation of science from politics' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'In search of new economists' and 'The myth of economics knowledge' and 'New Economic Thinking: the 10 crucial points'. For details of the bigger picture see cross-references Paradigm shift.

***

FACT: The comment above vanished within minutes from the Evonomics blog.
FICTION: This is how the New Economic Thinkers advertise themselves.

September 17, 2017

MMT ― the economics moron as problem solver

Comment on Zero Hedge on ‘Even Bernie Sanders Thinks ‘Medicare For All’ Would Bankrupt America’

Blog-Reference

MMTers do not know how the profit- and price mechanism works but they offer a one-size-fits-all solution for all economic problems: A sovereign currency issuer has, as a matter of principle, a monopoly on the issuance of the currency and can exercise this monopoly through unrestricted deficit spending for any chosen purpose from basic income to healthcare to warfare.

This, of course, is trivially true and just another wording for what sovereignty entails. Sovereignty, though, is the pivotal concept of Political Science and NOT of economics. The subject matter of economics is how the economic system works and NOT how the political system works.

Fact is, to begin with, that economists do NOT know how the economy works. Economists cannot until this very day tell the difference between profit and income. And these mentally retarded folks, who do not understand the foundational concepts of their subject matter and the elementary mathematics of accounting, tell their fellow citizens how best to organize the economy.

Economists have NOT produced anything of scientific value since Adam Smith but award themselves each year a prize for their non-existing scientific achievements: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Economics is a failed science, and MMT is NO exception:
  • MMT’s sectoral balances equations are mathematically false,
  • because the formal foundations are false the whole analytical superstructure is false,*
  • because MMT is materially/formally inconsistent, MMT policy guidance has NO sound scientific foundations,
  • because MMT has no scientific content whatsoever it is nothing more than brainless political blather,
  • because it holds that public deficit = private profit, MMT is a straightforward program for the unabated enrichment of the one-percenters,
  • to claim that MMT delivers a scientific underpinning of the political program of Bernie Sanders or Jeremy Corbyn is just one more absurd/fraudulent claim in the long history of the fake science called economics.

Egmont Kakarot-Handtke

* See cross-references MMT


Related 'Solving Mill’s starting problem' and 'Who or what exactly did Keynes save?' and 'Why Bernie Sanders is unintentionally a godsend for the one-percenters' and 'Endtime for soap box economists' and 'Banana economics' and 'Krugman is not an economist' and 'Turning the bananatization of economics around' and 'Hayek was not an economist' and 'Corbynomics' and 'Time to get rid of political economics'. For details of the bigger picture see cross-references Scientific Incompetence and cross-references Profit.

***
REPLY to Matt Franko on Sep 18

The title of my post is ‘MMT ― the economics moron as problem solver’. This, obviously, means you.

You say: “Egmont doesn’t understand Basis of Accounting” and refer to Wikipedia’s entry about the difference between cash basis and accrual basis accounting.#1

You overlook that this difference plays NO role in the present context because, for a start, both accounting methods are synchronized in order not get distracted by the technicalities of shifting profit between periods. So, both accounting methods lead to the SAME result in the present context. The term monetary profit Qm makes it explicit that profit, as it appears in accrual accounting and profit as it appears physically in the cash box, are numerically identical.

If you were not so stupid you would have realized that wage income as it accrues in the period under consideration is actually paid in this period.#2 The same holds for consumption expenditures. Hence it does NOT MATTER AT ALL whether accrual accounting or cash accounting is applied.

Fact is that MMTers got the macro accounting provably wrong#3 and this means that they are either morons or fraudsters. Take your pick.

#1 Wikipedia, Basis of accounting
#2 Economists: just too stupid for counting
Money and time
A tale of three accountants
#3 Rectification of MMT macro accounting

September 15, 2017

Why is economics such a scientific embarrassment?

Comment on Christopher Snyder on ‘What are economists for?’

Blog-Reference and Blog-Reference

Economics is a failed science because economists are scientifically incompetent. This applies to both the orthodox and heterodox species. Heterodox economists persistently point at what they regard as the unacceptable portions of Orthodoxy but they have not come up with a valid alternative since Jevons/Walras/Menger.

Christopher Snyder defines economics thus: “One short answer is that economics is the social science focusing on people’s material well-being, the ‘business side’ of life.”

Christopher Snyder still clings to the fatal error of the founding fathers, i.e., that economics is a so-called social science. Obviously, he has not heard that Feynman has debunked the so-called social sciences wholesale 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.”

Economists, to begin with, lack a real understanding of science, they are cargo cult scientists. For the general public, it is important to know that 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.

Economic policy presupposes knowledge of how the economic system works. This knowledge is embodied in the true theory: “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)

Because of the lack of the true theory the policy guidance of economists ― Walrasians, Keynesians, Marxians, Austrians, and Pluralists ― has NO sound scientific foundations.#1

Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). The methodological Ur-blunder of economics consists of defining economics as a social science. Economics is a system science.

Supply-demand-equilibrium economists are in the state of incorrigible self-delusion/idiocy/ corruption. They do not know what science is and ignore or even actively suppress refutation. As Morgenstern reminded his fellow economists back in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

From the standpoint of science, the economist is worse than the snake oil seller and fraudster because as a fake scientist he causes severe economic damages.#2 This is known since Napoleon: “Late in life… he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

Economics is NOT a science. Both orthodox and heterodox economics is just storytelling. There is neither material or formal consistency. The ultimate cause of failure is the scientific incompetence of economists since Adam Smith.

Egmont Kakarot-Handtke

#1 Why economists don’t know what profit is
#2 Mass unemployment: The joint failure of orthodox and heterodox economics

September 14, 2017

Where modern macroeconomics went wrong

Comment on Lars Syll on ‘Where modern macroeconomics went wrong’

Blog-Reference and Blog-Reference on Sep 17

Eighty years ago, Keynes got macro wrong and neither Keynesians nor anti-Keynesians noticed it until this very day.

Joseph Stiglitz maintains: “So both stories, the DSGE and the old-fashioned Keynesian, are simplifications. When they are incorporated into a simple macro-model, one is saying the economy acts as if… And then the question is, which provides a better description; a better set of prescriptions; and a better basis for future elaboration of the model.”

This is NOT the question. The real question is, how could economists ever take this whole proto-scientific rubbish seriously?

Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

After Keynes, every economist who does not see the necessity of a paradigm shift is a scientifically incompetent moron. There are NO excuses.

Keynes, though, messed up the shift from microfoundations to macrofoundations. His methodological blunder can be exactly located in the GT: “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.)#1

Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false.#2 It was Allais who identified Keynes’ lethal blunder.#3 Obviously, neither Joseph Stiglitz nor Lars Syll got the message.

Both the DSGEers and the Keynesians have until this very day NO idea of the fundamental concepts of economics, viz. profit and income. By consequence, both proto-scientific sects get the intertemporal relationship between income, consumption, saving, and profit badly wrong.#4 Needless to emphasize that neither Joseph Stiglitz nor Lars Syll nor other pseudo-thinkers came since Keynes one millimeter closer to the correct macroeconomic relationships.#5

Egmont Kakarot-Handtke

#1 For details see cross-references Keynesianism
#2 Where economics went wrong
#3 How Keynes got macro wrong and Allais got it right
#4 Settling the Theory of Saving
#5 Wikimedia, The Four Basic Economic Laws



CORE: more lipstick on the dead economics pig

Comment on Bill Mitchell on ‘Paradigm shift ― not from the CORE Econ Project ― as mainstream as you will get’

Blog-Reference and Blog-Reference on Sep 18 adapted to context and Blog-Reference on Sep 19

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 economic concepts profit and income wrong.

In science, a "distinct set of concepts or thought patterns, including theories, research methods, postulates, and standards for what constitutes legitimate contributions to a field is called a paradigm."#1 Because the four main approaches are provably false, that is, materially or/and formally inconsistent, a paradigm shift is an ABSOLUTE necessity.

Keynes put it thus 80 years ago: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

In methodological terms, a paradigm shift is “a fundamental change in the basic concepts and experimental practices of a scientific discipline.” The Keynesian paradigm shift, though, failed because Keynes messed up the move from microfoundations to macro- foundations.#2 As a result, economics fell back on the Jevons/Walras/Menger paradigm. As Krugman so nicely put it “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

The Neoclassical paradigm is defined by methodological individualism = microfoundations, which translates into the neo-Walrasian axiom set: “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)

These axioms (or slight variations thereof) define the orthodox paradigm. These microfoundations are false in multiple dimensions. This is a methodological fact. By consequence, the necessary paradigm shift consists in fully replacing ALL variants of behavioral microfoundations by systemic macrofoundations.

As an answer to both fundamental and superficial refutation economists talk much about New Economic Thinking and a new paradigm and more social commitment.#3 The members of the CORE project are no exception.#4

Fact is, the new CORE textbook does NOT present the urgently needed new paradigm but the maximization-and-equilibrium world in a redesigned user-friendly format that has been worked out by the marketing and PR folks in order to satisfy the demands of the new generation of dull economics students. These students do not want economics as objective scientific truth but as an easy to understand narrative. The new target group does not care about the material and formal consistency of theoretical economics but about the political message of political economics.

Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers).

From this false start economics never recovered and it developed into what Feynman called cargo cult science, which he defined as: “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. Economics is a failed science. The claim as expressed in the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a false claim. Both orthodox and heterodox economists are cargo cult scientists.#5

Economics does not need a new marketing thinking of opportunistic orthodox and hetero- dox proto-scientific losers#6 but a paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations.#7 Nothing less will do. The first rule of the paradigm shift says: If it isn’t macro-axiomatized, it isn’t economics.

The CORE textbook is NOT economics, it is cargo cult economics in a new Zeitgeist outfit. The overdue replacement of the proto-scientific textbook rubbish from Samuelson to Mankiw#8 lies still in the future.

Egmont Kakarot-Handtke

#1 Wikipedia Paradigm, Paradigm shift
#2 Post Keynesianism, too, is indefensible
#3 New Economic Thinking, or, let’s put lipstick on the dead pig
#4 Samuel Bowles, Wendy Carlin ‘A new paradigm for the introductory course in economics
#5 Fact of life: your econ prof is scientifically incompetent
#6 In search of new economists
#7 First Lecture in New Economic Thinking
#8 The father of modern economics and his imbecile kids


Related 'Economics: the emancipation of science from politics' and 'What makes economics a failed science?' and 'MMT: scientific incompetence or political fraud?' and 'The flat-earth realism of economists' and 'Why economists don’t know what profit is' and 'A bitter pill for political economists' and 'You are fired!'

***
LINK at Economist's View on Sep 14

Comment on ‘A New Way to Learn Economics - The New Yorker.’ See
CORE: more lipstick on the dead economics pig

September 12, 2017

Economics: the emancipation of science from politics

Comment on Simon Wren-Lewis on ‘Revolutions in Economic Policy’

Blog-Reference

There is the political realm and there is the scientific realm. Roughly speaking, the issue in the political realm is about the realization of the Good Society and the issue in the scientific realm is to gain knowledge about how the universe or one of its numerous sub-domains works. Knowledge takes the form of a theory that fits the criteria of material and formal consistency. The true theory is the humanly best mental representation of reality.

In politics, open questions are decided by the legitimate sovereign, in science they are decided by proof/disproof. Scientific standards are 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)

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.

Political economics has produced NOTHING of scientific value in the past 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. The pluralism of false theories is the characteristic of what Feynman called cargo cult science.

The lack of the true theory has grave consequences: since Adam Smith, economic policy guidance has NO sound scientific foundation. The general public always sees and discusses the policy proposals of economists but never the underlying theory, therefore it fails to see that there is a total disconnect between the two. The economists’ proposals do not follow from a valid theory because there is none.

Thomas Kuhn’s The Structure of Scientific Revolutions refers to science and by no stretch of the imagination to economic policy. A political revolution is something quite different from a scientific revolution. A scientific revolution, i.e. a paradigm shift, is caused by a failure of the current paradigm and not by a political upheaval or because of populist pressure. Scientific laws do not change when POTUSes come and go.

In economics, a paradigm shift is urgently needed because economic theory in its four incarnations ― Walrasianism, Keynesianism, Marxianism, Austrianism ― is provably false, that is, materially and formally inconsistent.

Economists do not understand until this day how the profit- and price mechanism works. Economics has no truth value, only some political use value. The economist is NOT appreciated as scientist, only as useful idiot.

A Scientific Revolution in economics means that theoretical economics (= science) emancipates itself from the corrupting grip of politics (= agenda pushing).

Egmont Kakarot-Handtke

What makes economics a failed science?

Comment on Lars Syll on ‘What makes economics a science?’

Blog-Reference and Blog-Reference

Economics is a failed science because economists are scientifically incompetent. Note that economists means BOTH the orthodox AND the heterodox variant. Heterodox economists always point to what they regard as the weak spots of Orthodoxy but they have NOT come up with something better since Walras/Jevons/Menger.

Lars Syll merely distracts from his own failure by again and again describing and criticizing orthodox methodology: “Modern mainstream (neoclassical) economists ground their models on a set of core assumptions (CA) — basically describing the agents as ‘rational’ actors — and a set of auxiliary assumptions (AA). Together CA and AA make up what might be called the ‘ur-model’ (M) of all mainstream neoclassical economic models. Based on these two sets of assumptions, they try to explain and predict both individual (micro) and — most importantly — social phenomena (macro).”

What Lars Syll overlooks is that he shares the foundational error with Orthodoxy, i.e., that economics is a so-called social science. Obviously, he has not realized that Feynman has debunked the so-called social sciences wholesale 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.”

Economists lack a real understanding of science. Both orthodox and heterodox economists are cargo cult scientists.

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.

Economic policy presupposes knowledge of how the economic system works. This knowledge is embodied in the true theory: “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)

Because of the lack of the true theory the policy guidance of economists ― Walrasians, Keynesians, Marxians, Austrians, and Pluralists ― has NO sound scientific foundations.

Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). The methodological ur-blunder of economics consists of defining economics as a social science. Economics is a system science. This means that economics has to perform the paradigm shift from obviously false behavioral microfoundations to the correct systemic macrofoundations.

Both orthodox and heterodox economists are in the state of incorrigible self-delusion/ idiocy/corruption. They do not know what science is, or if they know, they ignore or even actively suppress refutation. As Morgenstern reminded his fellow economists already in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

From the standpoint of science, the orthodox and heterodox economist is worse than the snake oil seller and fraudster because as a fake scientist he causes severe economic damages.#2 This is known since Napoleon: “Late in life… he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

Economics is NOT a science. Both orthodox and heterodox economics is materially and formally inconsistent. The ultimate cause is the scientific incompetence of economists.

Egmont Kakarot-Handtke

#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 Mass unemployment: The joint failure of orthodox and heterodox economics


Related 'Economics: a science without scientists' and 'Heterodoxy ― a new paradigm or just another political sect?' and 'The economist as standup comedian' and 'How economists murdered the economy and got away with it' and 'The father of modern economics and his imbecile kids' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Economists: just too stupid for counting'. For details of the bigger picture see cross-references Scientific Incompetence

September 11, 2017

MMT: for the record

Comment on Ellis Winningham on ‘MMT and Politics: A Brief Explanation’

Blog-Reference

You say: “I dislike quibbling, but MMT is prefaced by an operational description of how monetary systems work, paying particular attention to the existing monetary system. This analysis reveals the policy space associated with policy choice regarding the monetary system and monetary operations.
MMT is based on this analysis of policy space.
Secondly, MMT is also a macroeconomic theory based on a specific method for approaching macroeconomics that differs from other method owing to the operational analysis and other factors, such as attention to sectoral balances and stock-flow consistency.”

Fact is, the macroeconomic theory MMT policy proposals are based upon is false and has been refuted.#1 MMTers do NOT understand how the price- and profit mechanism of the monetary economy works. For the general public, the essential points are:
• MMT has NO sound scientific foundations,#2
• MMT’s sectoral balances equations are mathematically false,
• MMTers violate scientific standards on a daily basis,
• MMT is political agenda pushing in a scientific bluff package.

Egmont Kakarot-Handtke

#1 See cross-references MMT
#2 For details of the bigger picture see cross-references Keynesianism


Related 'MMT: scientific incompetence or political fraud?' and 'What makes economics a failed science?' and 'MMT ― the economics moron as problem solver'.

***
REPLY to MRW on Sep 11

(i) You doubt that “MMT’s sectoral balances equations are mathematically false.”
For the proof see ‘Rectification of MMT macro accounting

(ii) I said: “MMTers violate scientific standards on a daily basis”. You ask “What ‘scientific standards’ are those?”
• Scientific standards are 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)
• MMT is axiomatically false, materially/formally inconsistent, and profit/income is ill-defined (see i).
• Because of material/formal inconsistency, MMT policy guidance has no sound scientific foundation.
***
REPLY to MRW on Sep 12

(i) The fact that you ask me what the scientific standards are proves that you have NO idea of what science is. Let us fix this point first: you are a stupid and scientifically incompetent person.

(ii) The criterion of science is true/false with NOTHING in between. Truth, in turn, is well-defined by material and formal consistency. All this is known since 2000+ years: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)

(iii) Scientific knowledge takes the form of the true theory. All the rest of human communication is blather, storytelling, the-sun-goes-up common sense, wish-wash, gossip, ALL of which can be refuted either as logically inconsistent or factually inconsistent or both.

(iv) MMT has been logically refuted, that is, the mathematical proof has been given that the MMT balances equations are false.#1 Because the formal foundations of MMT are false the WHOLE analytical superstructure is false. MMT is scientifically unacceptable.

(v) You maintain that economics is not a science. You are obviously NOT acquainted with the history of economic thought. Since Adam Smith/Karl Marx economics is explicitly defined as science. The general public is year after year reminded of this fact with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#2 And every economist learns in Econ 101: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins)

(vi) Economics claims to be a science but is not. 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. MMT, too, is provably false and therefore scientifically worthless. Needless to emphasize that economists have come up with a virtually endless list of excuses for their manifest failure.#3

(vii) MMTers are in the state of incorrigible self-delusion/idiocy/corruption. They do not, to begin with, know what science is, or if they know, they ignore or even actively suppress refutation.#4

(viii) Because MMTers are substandard in all intellectual and ethical dimensions they have to be thrown out of science.

#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 The real problem with the economics Nobel
#3 Failed economics: The losers’ long list of lame excuses
#4 Peter Cooper, Bill Mitchell, Dirk Ehnts and other MMTers delete or block critique/ refutation from their blogs. From this tip of the iceberg, one can safely conclude that MMTers are definitively NOT committed to science. MMT is, like all political economics since Adam Smith, intentionally/unintentionally corrupting science, that is, undermining the integrity of the institution that is explicitly committed to provable truth.

***
REPLY to Tom Hickey on Sep 13

The social sciences in general and economics, in particular, is what Feynman called cargo cult science and he characterized it thus: “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. Scientific truth is well-defined by material and formal consistency. Economics lacks this consistency: “So we really ought to look into theories that don’t work, and science that isn’t science. (Feynman)#1

When one looks at MMT one finds that it has been logically refuted, that is, the mathematical proof has been given that the MMT balances equations are false.#2 Because the formal foundations of MMT are false the WHOLE analytical superstructure is false. MMT is scientifically unacceptable.

And this is what Feynman said about the “educated guesses” of MMTers: “… the inexperienced students, make guesses that are very complicated, and it sort of looks as if it is all right, but I know it is not true because the truth always turns out to be simpler than you thought.”#3

You can be sure that Feynman would have flushed MMT down the toilet without further ado because of manifest inconsistency.

#1 See also Tavares, E. (2014). The Farce That Is Economics: Richard Feynman On The Social Sciences. Zerohedge blog post.
#2 For the full-spectrum refutation of MMT see cross-references
#3 First Lecture in New Economic Thinking

September 10, 2017

Babble economics

Comment on Sandwichman on ‘The Othering of “Economic Illiteracy”’

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)

Economists do NOT have the true theory. They do not even know what a true theory looks like.#1 Worst of all, economists do not have an employment theory.#2 What they indeed have is a lot of incoherent babble about employment.

Accordingly, Sandwichman is not at all occupied with the primary level issue, that is, what determines overall employment in the monetary economy? He is merely occupied with the secondary or meta-level of what economists have said about employment. What we learn is that they have talked nonsense. But if there is something the general public knows for sure it is this: economists babble since 200+ years and have not come any closer to the true employment theory.#3

There is NO need at all for Sandwichman to present this awkward mishmash of lump-of-labor tenet, work sharing, collective bargaining, shirking, mutual smear, social dividend, work week shortening, distribution, production, saving, the Rani of Sirmur, the East India Company, colonialism, suprematism, and Attorney General Sessions’s blaming of illegal aliens.

Economists do not have the true employment theory but they have a lot of stories about what random morons have babbled about employment throughout the ages.

Sandwichman concludes: “Sessions’s economics is indeed terrible... as is the economics that opposes to it a fraudulent fallacy claim.” True, but only partially true. Fact is that economics as a whole is a repetitive ‘tale told by an idiot’ and Sandwichman keeps the terrible repetition going.#4

Egmont Kakarot-Handtke

#1 First Lecture in New Economic Thinking
#2 Mass unemployment: The joint failure of orthodox and heterodox economics
#3 Macrofounded labor market theory
#4 Economics: 200+ years of scientific incompetence and fraud


Related 'Hunting down the economics body snatchers'

***
Screenshot Sep 10, 18:39
***
Screenshot Sep 10, 21:47

Post Keynesianism, too, is indefensible

Comment on Robert Skidelsky on ‘Stylised Facts’

Blog-Reference and Blog-Reference

Eighty years ago, Keynes got macro wrong and Keynesians did not notice it until this very day. Yet, anti-Keynesians did not notice it either. There is no better proof of the abysmal scientific incompetence of economists.

Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

Primary Methodological Directive: Every economist who does not see the necessity of a paradigm shift is a moron. Fact is (i) that Walrasianism/Marshallianism has already been dead in the cradle, (ii) that Keynes was right on this point, and (iii), that it is impossible to go back before Keynes.

The Keynesian Revolution failed because Keynes messed up the move from micro- foundations to macrofoundations.#2 Keynes’ own methodological blunder can be exactly located in 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 and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified and rectified Keynes’ lethal foundational blunder.#2. Kaldor realized that something was wrong but did not make anything of it.#3 Thus, Kaldor missed the pivotal stylized fact of economics: overall monetary profit.#4

Both, the pro-Keynesians and the anti-Keynesians have until this very day NO idea of the fundamental concepts of economics, viz. profit and income. Fact is that Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is NOTHING to chose.

Egmont Kakarot-Handtke

#1 Keynes’s message for contemporaries
#2 How Keynes got macro wrong and Allais got it right
#3 Kaldor, N. (1983). Grenzen der General Theory. Berlin: Springer, p. 29, fn. 2
#4 Why Post Keynesianism Is Not Yet a Science

September 9, 2017

MMT: scientific incompetence or political fraud?

Comment on Peter Cooper on ‘Unfulfilled Potential’

Blog-Reference and Blog-Reference

There is the political realm where, in principle, everyone is admitted. The currency in the political realm is opinion. Opinion is different from knowledge and the fact of the matter is that it is most of the time false or merely superficially plausible.

Accordingly, 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). For the general public, science clones are virtually indistinguishable from scientists: “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 in political economics is the true theory of how the actual economic system works.#1 The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is no such thing as a scientifically true economic theory, merely the pluralism of provably false theories.

Political economics is easy to recognize. Political economists do not talk about how the economy works but about freedom, liberty, democracy, overall welfare, justice, ethics, the conscience of a liberal/conservative, folk psychology/sociology, nationalism/globalism, and the bad elite versus the good little man. Political economics ― right-wing, left-wing does not matter ― has produced NOTHING of scientific value in the last 200+ years.#2

MMT is no exception. MMTers stand for a series of political priorities, first and foremost sovereignty: “… a government’s monetary sovereignty creates a potential for meaningful social progress. But it is only a potential, and can only be fulfilled through genuine democracy conducted by an informed citizenry.” (Cooper)

There is nothing to say against the political program of MMT except that it is backed by an economic theory and that this theory is provably false. The problem with MMT is this:
• it is based on inconsistent accounting identities,#3
• it is scientifically worthless,
• it amounts to a wellness program for the one-percenters,#4
• it claims to support the little man.#5

Either MMTers are in a state of scientific self-delusion or they are just another political fraud like Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.

Egmont Kakarot-Handtke

#1 The economist as standup comedian
#2 Economics: 200+ years of scientific incompetence and fraud
#3 Rectification of MMT macro accounting
#4 MMT and the magical profit disappearance
#5 MMT is NOT an alternative to neoliberalism and Why Bernie Sanders is unintentionally a godsend for the one-percenters


Related 'MMT: for the record'. For the full-spectrum refutation of MMT see cross-references.

***
Screenshot, Sep 9, 16:18
***
Screenshot, Sep 9, 21:13

The flat-earth realism of economists

Comment on Noah Smith on ‘Realism in macroeconomic modeling’

Blog-Reference

Noah Smith discusses a cool paper: “Ljungqvist and Sargent have a new paper synthesizing much of the work that’s been done in labor search-and-matching theory over the past decade or so.”

Like Ljungqvist and Sargent and the 99-percent majority of scientifically incompetent economists Noah Smith has not realized that microfoundations is a failed approach since 140+ years. This becomes as obvious as anybody could wish when microfoundations are applied to macroeconomic issues.

The Iron Law of Economic Methodology says: NO WAY leads from the explanation of individual/social human behavior to the explanation of how the monetary economy works. In other words, the microfoundations approach has already been dead in the cradle because it is bound to crash with absolute necessity into the Fallacy of Composition.

By consequence, not only macroeconomics but the whole of economics has to be macrofounded.#1 Macrofoundations provide the consistent framework for micro analysis. Economic analysis has to switch from bottom-up to top-down.

In the following, a sketch of the formally and empirically correct employment theory is given.#2 The basic version of the objective-structural-systemic Employment Law reads:
This macroeconomic equation is not merely “realistic” but REAL because it consists alone of measurable variables. It follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 means dissaving or credit expansion, a ratio rhoE less than 1 means saving or credit contraction.
(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.

The complete AND testable employment equation is a bit longer and contains in addition profit distribution, public deficit spending, and foreign trade.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism which, however, does not work as the microfounded cargo cult economist hallucinates. Fact is that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. THIS is the key to full employment policy.

It is pretty obvious to anyone with one iota of scientific instinct that one cannot figure out the determinants of overall employment by applying a brain-dead, microfounded, “realistic”, maximization-and-equilibrium labor search-and-matching model.

Time now for Ljungqvist and Sargent to retire and for Noah Smith to follow suit.

Egmont Kakarot-Handtke

#1 This is the minimalist set of macro axioms: (A0) The objectively given and most elementary systemic configuration of the production-consumption 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.
#2 For the comprehensive treatment see ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

September 8, 2017

Why economists don’t know what profit is

Comment on Steve Roth on ‘Why Economists Don’t Know How to Think about Wealth (or Profits)’

Blog-Reference and Blog-Reference

The short answer is because economists are scientifically incompetent. The profit theory is false since Adam Smith or, as the Palgrave Dictionary puts it, “A satisfactory theory of profits is still elusive.” (Desai, 2008)#1, #2 In fact, Walrasians, Keynesians, Marxians, Austrians, and Pluralists have NO idea of profit ― the pivotal concept of their subject matter.

Both Orthodoxy and Heterodoxy lacks material/formal consistency. From the viewpoint of science, economics is a failure, from the viewpoint of the general public, economics is a fraud.

In order to establish material consistency, one needs measurement and one of the most important measurement tools of economics is national accounting. The importance of national accounting for testing of economic models is comparable to CERN for testing in physics. MMTers got the point in principle (albeit not in practice#3), yet in general, it holds that economists neither understand the significance nor the elementary mathematics of national accounting.

Economic theory and accounting are like hand and glove. Therefore, it is of utmost importance that the foundational concepts are consistently defined and the SAME in theory and accounting. It is the worst mistake to play accounting against theory/model. At a deeper level, they have a common conceptual/formal core, i.e. the axioms of economics.

Because the nominal magnitudes of accounting are a subset of a comprehensive theory which is composed of nominal and real variables, the concepts have to be consistently defined in theory and then applied one-to-one in national accounting.#4 Theory has to take the lead.#5

It holds: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen) Fact is that Walrasian micro- foundations and Keynesian/MMT macrofoundations are axiomatically false. This is why economics is a failed science.

Steve Roth names two big discrepancies between theory and national accounting, i.e. ‘The Paradox of Monetary Profits’#6 and ‘Saving and Investment’.#7 These discrepancies can only be resolved by a paradigm shift, that is, by a move from false Walrasian micro- foundations and false Keynesian macrofoundations to entirely new macrofoundations.#8

Steve Roth concludes: “To quote David Glasner, ‘as much as macroeconomics may require microfoundations, microeconomics requires macrofoundations.’ … Those foundations are the technical economic terms used — because words are what we use to think together — and the mutually coherent and interrelated accounting identities that define those terms. Absent those definitions, economists quite literally don’t know what they’re talking about.” In brief: If it isn’t macro-axiomatized, it isn’t economics.#9

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith
#2 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#3 Rectification of MMT macro accounting
#4 True macrofoundations: the reset of economics
#5 A tale of three accountants
#6 For details see cross-references Profit
#7 For details see cross-references Refutation I=S
#8 Keynesians ― terminally stupid or worse?
#9 For details see cross-references Paradigm shift

September 5, 2017

Economic methodology for the little man

Comment on Lars Syll on ‘Methodological arrogance’

Blog-Reference and Blog-Reference

It is a fact that the little man has an ego problem. Worse, this psychological disadvantage is exploited in all kinds of discussions. To position oneself as the humble friend of the people and to call the opponent an arrogant elitist is a sure way to win standing ovations in every sitcom, no matter what the issue is.

These age-old rhetorical maneuvers, though, are entirely misplaced in a discussion about the methodology of economics. David Glasner disqualifies himself with this argument: “So what do I mean by methodological arrogance? I mean an attitude that invokes micro-foundations as a methodological principle — philosophical reductionism in Popper’s terminology — while dismissing non-microfounded macromodels as unscientific.” Note that the introduction of the psychological notion of arrogance adds nothing of relevance but merely emotionally distracts from the point at issue.

The point at issue is whether Walrasian microfoundations or Keynesian macrofoundations are the correct starting point of economic analysis. And the short and simple answer is, without humbleness or arrogance, that BOTH are unacceptable proto-scientific rubbish.

Microfoundations are given with these verbalized Walrasian axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

From these premises follows supply-demand-equilibrium and all the rest of microeconomics.

Obviously, the Walrasian 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. By consequence, economics from Jevons/Walras/Menger to DSGE/RBC is false.

Keynes has to be credited for realizing that Orthodoxy was false at its core and that nothing less than a paradigm shift was needed.

The Keynesian Revolution, though, failed because Keynes messed up the move from microfoundations to macrofoundations. Keynes’ own methodological blunder can be exactly located in 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 and income are ill-defined the whole theoretical superstructure of Keynesianism is false. It was Allais who identified and rectified Keynes’ lethal foundational blunder.#1 After-Keynesians have not noticed anything until this very day.

What the team Glasner/Syll has not realized is that BOTH Walrasian microfoundations and Keynesian macrofoundations have to be buried. The former is already dead since 140+ years, the latter for 80+ years.

By consequence, there is only ONE worthwhile task in today’s economics: the paradigm shift from false micro and false macro to the true macrofoundations.#2 It holds: If it isn’t macro-axiomatized, it isn’t economics.

Do not expect this urgent paradigm shift from the self-declared champions of the little man, long-standing proto-scientific blatherers, and cargo cult scientists David Glasner and Lars Syll.

Egmont Kakarot-Handtke

#1 How Keynes got macro wrong and Allais got it right
#2 First Lecture in New Economic Thinking

September 4, 2017

Hunting down the economics body snatchers

Comment on Jason Smith on ‘Solow has science backward’

Blog-Reference

The story: In economics, a group of people discover that scientists have been replaced one by one, with political clones devoid of Feynman Integrity. These economists must escape or suffer the same fate. But who can be trusted and who has already been snatched?#1

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;#2 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). For the general public, science clones are virtually indistinguishable from scientists: “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.”#3

There is, though, a reliable method to identify economics body snatchers on the Internet: refute their arguments logically or empirically and see what happens.

A scientist is committed to the scientific method: “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)

A scientist accepts refutation. However, as already Morgenstern realized, this is not what can be observed in economics: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

The science clone in the Internet age is not bothered much with a refutation but sees to it that it vanishes as fast as possible from his blog or makes sure that it is blocked from the outset.

Jason Smith, of course, is only one of many easily identifiable blog manipulators.#4 What makes him an especially repugnant body snatcher is that he constantly invokes Feynman Integrity.

Egmont Kakarot-Handtke

#1 Adapted from IMDb ‘Invasion of the Body Snatchers
#2 "Paul Feyerabend argued that no description of scientific method could possibly be broad enough to include all the approaches and methods used by scientists, and that there are no useful and exception-free methodological rules governing the progress of science. He argued that 'the only principle that does not inhibit progress is: anything goes'." (Wikipedia) 'Anything goes' holds only in the context of discovery but NOT in the context of justification. Methodology, though, is NOT AT ALL about the context of discovery, it is not prescriptive about how to find the true theory. In the context of justification, nothing but proof (material/formal consistency) counts.
#3 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#4 Economics: math-adorned incoherent blather
Feynman Integrity, fake science, and the econoblogosphere
True macrofoundations: the reset of economics
Macro imbeciles
IS-LM ― a crash course for EconoPhysicists
What genuine scientists believe about economics
Hayek and other informationally retarded proto-economists
Economics between cargo cult, farce, and fraud
The key to macro and Keen’s debt-employment model


Related 'Robert Solow and Lars Syll, fake scientists' and 'MMT, fake science' and 'Keynesians ― terminally stupid or worse?' and 'Karl Marx, fake scientist' and 'Barkley Rosser, petty scientist' and 'In search of new economists' and 'The five pathetic blunders of Roger Farmer' and 'Milton Friedman, fake scientist' and 'Forget Hayek' and 'The myth of economics knowledge' and 'Friedman and the cluelessness of fake scientists' and 'The father of modern economics and his imbecile kids' and 'Economic methodology for the little man'

***
LINK at Brian Romanchuk — Book Review: A Random Physicist Takes On Economics