January 30, 2017

Going beyond Wicksell, Keynes, and MMT

Comment on Lars Syll on ‘The origins of MMT’

Blog-Reference and Blog-Reference and Blog-Reference

No doubt, with regard to the theory of money Wicksell, Keynes, and MMT are superior to DSGE/RBC/New Keynesianism. However, Wicksell, Keynes, and MMT failed to integrate the theory of money into a consistent macroeconomic framework.

MMTers are right: mainstream economics is a failed approach and irrecoverably lost in the parallel universe of error, inconsistency, feeblemindedness, and aberration. But MMTers are wrong in believing that MMT is firmly on the right track.#1,#2

MMT is still caught in the PsySoc trap by maintaining that economics is about human behavior. The first point to realize is that economics is about the behavior of the economic system. Economics is NOT a social science but a system science. To derive the theory of money from the history of money is therefore doomed to failure.

The second point to realize is that all variants of Keynesianism suffer from methodological self-delusion. Paul Davidson maintains: “Post Keynesian models are designed specifically to deal with real-world problems.” And Bill Mitchell adds: “In this tradition, MMT ... is not an imaginary approach that deals with imaginary problems. It is about the real world and starts with some basic macroeconomic principles like ― spending equals income.”

Time to wake up to the fact that this ‘principle’ is provable false since Keynes applied it in the General Theory.#3 Because of this, the whole analytical superstructure of Keynesianism, Post Keynesianism, and MMT breaks apart. From this, in turn, follows that policy guidance with regard to monetary and fiscal policy has no sound scientific foundation.#4

Monetary theory has to be based on axiomatically true macrofoundations.#5, #6

Egmont Kakarot-Handtke

#1 See ‘The final implosion of MMT
#2 See ‘Rethinking MMT
#3 See ‘Why Post Keynesianism Is Not Yet a Science
#4 See ‘Rethinking deficit spending
#5 See ‘Reconstructing the Quantity Theory
#6 First Economic Law, derived from the correct macrofoundations

First Economic Law

***
REPLY to Auburn Parks on Jan 30

Keynesianism, Post Keynesianism and MMT is provably false in the same sense as 2+2=5 is false. The fact of the matter is that the MMT folks do not even get the elementary mathematics of accounting right.

The economy is a complex system and a system is subject to systemic laws.#1 The obvious analogy is an aircraft which is subject to the laws of aerodynamics, thermodynamics, etcetera. Only the retarded folks from the economics department believe that utility maximization or animal spirits make an aircraft fly.

Keynesianism, Post Keynesianism and MMT is provably false and because of this Keynesians, Post Keynesians and MMTers are forever unacceptable in the scientific community.#2

The good thing in economics is that morons have always an alternative career path open as political soap box blatherers in the Circus Maximus.#3

#1 For details see ‘From PsySoc to SysHum’ and ‘Complexity and stupidity
#2 See ‘Why Post Keynesianism Is Not Yet a Science
#3 See ‘Political economics: a deadhead sitcom

***
REPLY to Tom Hickey on Jan 30

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’. MMT gives a historical account of how money came into existence as a creation of the state. This historical account is not false but methodologically it is NO substitute for the theory of money, just as the history of the burning of Rome, London, and San Francisco is no substitute for the theory of thermodynamics.

There is NO way around the macrofoundations of the theory of money. And this, indeed, is the route Keynes took.

The formal foundation of the General Theory is given with: “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. The foundational mistake/error/blunder carries over to Post Keynesianism and MMT. As Bill Mitchell says: “It [MMT] is about the real world and starts with some basic macroeconomic principles like ― spending equals income.”

It is pretty obvious that an economist who cannot tell the difference between the fundamental economic magnitudes profit and income is a laughing stock. This applies to Walrasians and Keynesians of all colors. It applies, of course, to the MMT folks in general and more specifically to Auburn Parks and Ralph Musgrave.

Neither Keynesians nor Post Keynesians nor MMTers will make it into the future of economics because of proven logical incompetence.

***
REPLY to Auburn Parks, Ralph Musgrave, Six, TofuNFiatRGood4U and other blogging cranks on Jan 31

In the political sphere we have freedom of speech, so everybody can climb on a soap box and make an economic policy proposal: “A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy. In the thirties we had Major Douglas, and social credit ― it can all be done with a fountain pen ― and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Joan Robinson)

Everybody can make a soap box economic policy proposal EXCEPT an economist because: “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)

The big, big, big problem is that economists do NOT have the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got profit wrong.

Because economists lack the true theory there is no significant difference between a crank and an economist.#1 The general public, of course, does not know that the profit theory is false since 200+ years, marginalism and supply-demand-equilibrium is false since 140+ years and Keynesianism is false since 80+ years. False means scientifically false, that is, materially and formally inconsistent.

From this follows that economic policy guidance with regard to monetary, fiscal and employment policy has NO sound scientific foundation.#2 In the political sphere, this is a matter of indifference, because here only political beliefs matter. But the fact that false theories are politically useful does not make them scientifically acceptable.

The MMT folks make policy proposals that are commonsensically acceptable but this does not change the fact that MMT is false because it is based on faulty macrofoundations. It is of utmost importance to keep politics and science apart and this implies that political agenda pushers have to be thrown out of science.#3

Political economics has produced NOTHING of scientific value in the last 200+ years. This includes MMT. The way forward is: “Scrap the lot and start again.” (Joan Robinson)

#1 See ‘There is NO such thing as an economic expert
#2 See ‘Unemployment is high because economics is false: period, full stop, end of story
#3 See ‘Scientific suicide in the revolving door


Related 'Why Bernie Sanders is unintentionally a godsend for the one-percenters' and 'Keynesianism as ultimate profit machine' and 'Macroeconomics without Keynes'

Macroeconomics without Keynes

Comment on Roger Farmer on ‘Keynesian Economics Without the Consumption Function’

Blog-Reference and Blog-Reference and Blog-Reference on Apr 11 adapted to context

Roger Farmer announces: “In Prosperity for All, I describe a theory of Keynesian economics, developed in my recent body of work, in which the transmission mechanism from demand to employment is through wealth, not through income. I call this, a theory of Keynesian economics without the consumption function.”

This does not go far enough. Keynesianism as a WHOLE, and not only the consumption function, has to be buried because it is axiomatically false.

1. How Keynes got it wrong
Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This elementary syllogism is conceptually defective because Keynes never came to grips with profit (Tómasson et. al.). As a result, all I=S models and the Keynesian multiplier are false.#1,#2

2. Rectification
The defective Keynesian premises have to be replaced by the correct macrofoundations.
(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.

These macro axioms replace Keynes’s provable false formal foundations and by implication the false Walrasian microfoundations.

3. The correct employment equation
The elementary version of the objective systemic employment equation for the investment economy which follows from A1/A3 is shown on Wikimedia.#3

From this equation 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 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction. (ii) Increasing investment expenditures I exert a positive influence on employment, a slowdown of growth does the opposite. (iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete employment equation gets a bit longer and contains in addition profit distribution, the government sector, and foreign trade.

Item (i) and (ii) cover Keynes’s arguments about aggregate demand. The ratio rhoE replaces the Keynesian consumption function. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism which, however, does not work as standard economics assumes. As a matter of fact, overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This implication is readily testable against standard economics.

4. Conclusion
The replacement of Keynes false macrofoundations by the true macrofoundations yields the objective systemic (= behavior-free) employment equation. This equation is the one stone that kills the Keynesian multiplier, all IS-LM models, the stickiness argument, the false Keynesian profit theory, and the (Bastard-) Phillips curve including the natural rate hypothesis.#4

Egmont Kakarot-Handtke

#1See ‘How Keynes got macro wrong and Allais got it right
#2 See ‘Why Post Keynesianism Is Not Yet a Science
#3 Wikimedia
#4 See ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

Related 'New IS-LM macro ― just another fake revolution' and 'Windmill economics' and 'Keynes saw the problems but did not solve them'

January 29, 2017

Friedman and the cluelessness of fake scientists

Comment on Lars Syll on ‘Milton Friedman’s pet theory finally shown to be wrong’

Blog-Reference

Lars Syll comments on the refutation of the permanent income hypothesis (PIH): “My doubts regarding macro economic modelers’ obsession with Euler equations is basically that, as with so many other assumptions in ‘modern’ macroeconomics, Euler equations, and the PIH that they build on, don’t fit reality. ... But it is still an undeniable fact that theoretical models building on piles of known to be false assumptions — such as PIH and the Euler equations that build on it — in no way even get close to being scientific explanations. On the contrary. They are untestable and hence totally worthless from the point of view of scientific relevance.”

This is true but not new. Economics is built since 200+ years on false assumptions. In other words, economics is what Feynman famously called a cargo cult science. Friedman is only one fake scientist in the long line that stretches from the storyteller Adam Smith to the loudspeaker Paul Krugman.

It is of utmost importance to distinguish between political 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 has to be judged according to the criteria true/false and NOTHING else. Scientific truth is well-defined by material and formal consistency. But theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Can there be the slightest doubt that Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Syll and almost everybody in-between falls into the category of political economist or fake scientist?

Political economics has produced NOTHING of scientific value in the last 200+ years. Since the founding fathers economists claim to do science but they have never risen above the level of opinion, belief, wish-wash, storytelling, soap box propaganda, and sitcom gossip. During his lifetime Milton Friedman produced plain scientific rubbish and never realized that his axiomatic foundations were false.

Friedman’s policy prescriptions are regarded as outdated but the representative economist still applies Friedman’s false premises. Orthodox economics is built since Jevons/Walras/ Menger upon this set of foundational propositions, a.k.a. 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)

Methodologically, these premises are forever unacceptable. The microfoundations approach has already been dead in the cradle. The axiom set contains THREE NONENTITIES: (a) constrained optimization (HC2), (b) rational expectations (HC4), (c) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. So, not only Friedmanian economics but orthodox economics from Jevons/Walras/Menger to DSGE/RBC/New Keynesianism is axiomatically false. There is no need to go into the details of the analytical superstructure, axiomatically false is the death sentence for a paradigm.

There is not much use to criticize a political clown like Friedman much longer. To get out of failed economic theory requires nothing less than a full-blown paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to entirely NEW macrofoundations. Everything else is a continuation of fake science.

Egmont Kakarot-Handtke


Related 'If it isn’t macro-axiomatized, it isn’t economics' and cross-references Political economics and cross-references Paradigm shift

January 28, 2017

Profit and price ― solving the mystery

Comment on David Ruccio on ‘Profit inflation’

Blog-Reference

David Ruccio takes Commerce Department data and performs an eye ball analysis of the relationship between profit and inflation. This is an absolutely ridiculous exercise because David Ruccio lacks a valid profit and price theory.

The scientific fact of the matter is that economists do NOT know what profit is. More specifically, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got profit wrong. As Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

By consequence, everything economists have said since Adam Smith about the relationship between profit and inflation is pseudo-scientific rubbish.

Because the formal proof can be found elsewhere#1,#2,#3 we can confine ourselves here to simply taking notice of the solution. For the most elementary case of a pure consumption economy, the Profit Law is given here and the Law of Supply and Demand is given here. Legend: Qm monetary profit, rhoE expenditure ratio, rhoD distributed profit ratio, Y total period income, P price, W wage rate, R productivity.

From these two equations then follows the relationship between monetary profit and inflation.

The systemic Profit Law says for the economy as a WHOLE that it is NOT wage income that is the antagonist of profit but monetary saving. Put the other way round: it is deficit spending/dissaving of the household sector, i.e. rhoE greater 1, and profit distribution, i.e. rhoD greater 0, that are the profit determinants in the pure consumption economy. For the price determination unit wage costs come in as the third factor.

ALL textbook profit and price theories are false and neither orthodox nor heterodox economists have realized it until this very day.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 See ‘Inequality: Market failure or theory failure?
#3 See ‘How the intelligent non-economist can refute every economist hands down

Economism, vulgar economics, and the curse of goofy critics

Comment on David Ruccio on ‘Economism — or vulgar economics’

Blog-Reference

David Ruccio comments on James Kwak’s summary#1 of labor market theory and the minimum wage controversy: “That is the very definition, in our own time, of vulgar economics: ‘interpret, systematise and defend in doctrinaire fashion the conceptions of the agents of bourgeois production who are entrapped in bourgeois production relations.’”

One wonders why vulgar economics is not simply replaced by something better. After all, the vulgarity critique goes back as far as Marx. Time enough, one tends to think, to not only repetitively point out the numerous defects of the ridiculous Econ 101 supply-demand-equilibrium construct but to explode economism/vulgarity once and for all with a superior approach.#2

The fact of the matter is, though, that the critics never tried to replace Econ 101 in earnest. They only put lipstick on a dead pig by adding more ‘realism’ or ‘complexity’: “The supply-and-demand diagram is a good conceptual starting point for thinking about the minimum wage. But on its own, it has limited predictive value in the much more complex real world.”#1

This is like adding just another epicycle to the false Geo-centric theory instead of replacing it by the Helio-centric theory. What incompetent critics like Kwak and Ruccio do not realize is that the supply-and-demand diagram can by NO stretch of the imagination be accepted as ‘a good conceptual starting point’ but has to go DIRECTLY into the waste basket. What is needed is an entirely NEW conceptual starting point.

Econ 101 as a whole ― not only the labor market theory ― is false. The ultimate reason is that it rests on false premises. As a result, the standard analytical tool, i.e. SS-curve―DD-curve―equilibrium, is absolutely useless because it represents a NONENTITY. So, (i) the formal representation of “the” market is false to start with, and (ii), it is, as a matter of principle, inadmissible to generalize the results of partial analysis for the economy as a whole. This is the fallacy of composition which pervades the whole of economics.

Walrasian, Keynesian, Marxian and Austrian economists are groping in the dark with regard to the two most important features of the market economy, that is, the profit mechanism and the price mechanism. To get out of failed economic theory requires nothing less than a full-blown paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to entirely NEW macrofoundations.

In the following, a sketch of the correct employment theory is given.#3 The elementary version of the objective systemic employment equation for the investment economy is shown on Wikimedia. From this equation 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 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment, a slowdown of growth does the opposite.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

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

Item (i) and (ii) cover Keynes’s well-known arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism which, however, does not work as standard economics hallucinates. As a matter of fact, overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what standard economics teaches and has profound implications for the minimum wage discussion.

The systemic employment equation contains nothing but measurable variables and is therefore readily testable. As always in science, a test decides the matter.

Right policy depends on 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)

Standard supply-demand-equilibrium economists lack the true theory. Econ 101 is provably false.#4 Standard labor market theory is provably false. The age old minimum wage discussion is a moronic joke. Scientifically incompetent orthodox AND heterodox economists are ultimately responsible for mass unemployment, deflation, depression, and stagnation.#5

Egmont Kakarot-Handtke

#1 See Kwak ‘The Curse of Econ 101
#2 See also ‘Traditional Heterodoxy’s paradigmatic impotence
#3 For details see the working papers
The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
The Truly General Theory of Employment: How Keynes Could Have Succeeded
Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior
Essentials of Constructive Heterodoxy: Employment
#4 See ‘The father of modern economics and his imbecile kids
#5 See also ‘Economists: Incompetent? Stupid? Corrupt?


Related 'Traditional Heterodoxy’s paradigmatic impotence' and 'The end of traditional Heterodoxy in the Malmö coal pit' and 'Economics, methodology, and the Molehill Impossibility'

January 26, 2017

Traditional Heterodoxy’s paradigmatic impotence

Comment on Editor on ‘The static analysis of the supply and demand model’

Blog-Reference

Editor quotes Stuart Birks’s critique: “Note that the supply and demand model is, like much of economics, based on static analysis. Consequently the focus will be on the market equilibrium. It is based on the idea that you have a scenario within which you can have as much costless adjustment as required to achieve some final end state which will be the equilibrium (issues of existence and uniqueness aside). This does not reflect the real world. In reality, there is a starting point, A. This is more than just an initial resource endowment. It also specifies an application of those resources, for example producing and consuming goods and services at some rate of output (as we are actually moving through time). There is also a path to be taken to the endpoint.”

This critique is absolutely correct. Economists think they can answer any question by painting the triad SS-function―DD-function―equilibrium. Leijonhufvud called this analytical tool totem of the micro/totem of the macro. What the representative economist does not understand until this day is that there is NO such thing as an economic equilibrium and NO such thing as SS and DD functions. The totem of micro/macro is a NONENTITY like the Tooth Fairy or the Easter Bunny.

While traditional Heterodoxy has correctly identified the core of every economic textbook as utter scientific rubbish it has failed to provide the methodologically correct replacement of the methodologically unacceptable supply-demand-equilibrium construct. In other words, traditional Heterodoxy failed at its mission to bring about the necessary paradigm shift.

This feat has been accomplished by constructive Heterodoxy, see
Essentials of Constructive Heterodoxy: The Market
The Law of Supply and Demand: Here It Is Finally
How to Get Rid of Supply-Demand-Equilibrium

What both orthodox and heterodox economists in their innate scientific incompetence have failed to realize is that the economy as a system is defined by the interrelationship of a number of elementary variables. Every model, no matter how differentiated, must contain these OBJECTIVE SYSTEMIC interrelationships as its formal hard core. This is an imperative methodological necessity.

The false Walrasian microfoundations and the false Keynesian macrofoundations have to be replaced by the true macrofoundations. The graphical representation of this absolute formal minimum is given on Wikimedia. This chart replaces the hare-brained totem of SS-function―DD-function―equilibrium. A detailed description of the elementary macro relationships has been given in the papers referenced above.

It is time now for traditional Heterodoxy, which has exhausted itself in repetitive critique, to get out of the way and to no longer hamper progressive constructive Heterodoxy.

Egmont Kakarot-Handtke

January 24, 2017

Economists: Incompetent? Stupid? Corrupt?

Comment on Michael Norman on ‘Stephanie Kelton BLOCKED ME on Twitter. Wow.’

Blog-Reference

This is the normal reaction of a scientifically trained non-economists when he is for the first time confronted with standard economics: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006)

Economists, though, are a different species.

(i) The representative economist who takes his academic degree and is convinced that supply-demand-equilibrium provides an acceptable theory of how the economic system works and accepts standard economics (with the usual reservations/disclaimers/excuses*) is scientifically incompetent.

(ii) The representative economist who communicates/defends standard economics on his own blog or on the numerous economics blogs propagates a provably false theory. Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and ALL got the foundational concepts of the subject matter, i.e., profit and income, wrong.

(iii) The representative economist who is given a proof in the course of a discussion that standard economics is false and does not understand the argument is not only scientifically incompetent but stupid.

(iv) The economist who understands the proof and deletes it from his blog or automatically filters all serious counter arguments out violates scientific standards and undermines the claim that economics is a science as expressed in the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

The current state of economics is that of a failed science. The propagation of the four main approaches, therefore, amounts to unintentional disinformation or intentional misinformation.

Which blogs promote serious research/discussion and which are corrupted can only be found out by testing, that is, by submitting well-argued posts. From concrete experience follows this random selection of blogs that block/delete challenging contributions (last updated Sep 13):
Economist’s View
EconoSpeak
Uneasy Money
Billy blog
Worthwhile Canadian Initiative
The Baseline Scenario
Social Democracy For The 21st Century
bradford-delong.com: Grasping Reality with Both Hands
Real-World Economics Review blog
Lars P. Syll blog
Stumbling and Mumbling
Roger Farmer's Economic Window
evonomics
Critical Macro Finance
Institute for New Economic Thinking
Naked Keynesianism
The Conversation
Information Transfer Economics
Bloomberg View
Diez Vollmer
EconBlog101
heteconomist
Fresh Economic Thinking
Noahpinion
Robert Skidelsky
Angry Bear
etcetera

Note that the blog owner is entitled to reject submissions for whatever reason. There is nothing illegal in selecting the content of one’s own blog. What is at issue is the violation of well-established and well-known SCIENTIFIC standards.

How to double-check the past and actual intensity of scientific corruption in 3 easy steps:
(1) Go to the AXEC blog
(2) Click the label zML (ML = missing link). All posts that have been submitted but did not appear or vanished later are selected.
(3) Click Blog-Reference at the post’s header for jumping to the discussion thread and looking after the submitted AXEC post.

If you cannot find it this can mean two things: (i) a technical glitch, (ii) censorship. If this happens more than two times with the same blog it is very probably (ii). What can also happen is that a post reappears after some time. In this case, the ML label is corrected as soon as it is noticed.

This exercise confirms in greater detail what is already known since the founding fathers: economics has been hijacked and corrupted by politics. The representative economist as he presents himself on the economics blogs is a rather stupid flag-waving agenda pusher and NOT acceptable in the scientific community.

Egmont Kakarot-Handtke

* See ‘Failed economics: The losers’ long list of lame excuses

***
COMMENT on Dan Lynch on Jan 25

You say: “I take from MMT certain parts that I like, and leave the rest.” This is (i) not very interesting for the rest of the world, (ii) entirely beside the point.

As a matter of principle, everybody has the right to his own opinion no matter how stupid, crazy, wrong, or absurd; the only exception is scientists. The ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge). Scientific knowledge is well-defined by material and formal consistency. Knowledge is established by proof — belief or opinion count for NOTHING.

Opinion is the currency in the political sphere, knowledge is the currency in the scientific sphere. It is extremely important to keep both spheres separate. Since the founding fathers, though, economists have not emancipated themselves from politics. They claim to do science but they have never risen above the level of opinion, belief, wish-wash, storytelling, soap box propaganda, and sitcom gossip.#1

So, the point with MMT is this:
1. There is a mistake/error/blunder in the formal foundations of MMT. In other words, MMT does not satisfy the scientific criterion of logical consistency.#2
2. The formal proof has been submitted to an MMT blog.#3
3. This proof has NOT been answered but simply deleted.
4. It is against the most elementary scientific rules to suppress refutation. As everybody knows from Popper “... science is one of the very few human activities — perhaps the only one — in which errors are systematically criticized and fairly often, in time, corrected.”
5. MMT is fake science or what Feynman called cargo cult science. The same holds for Walrasianism, Keynesianism, Marxianism, Austrianism.

The point is this: “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 and because of this all economic policy proposals are worthless — nothing more than personal opinion and soap box blather.

Economics in general, and this includes MMT, has to be thrown out of science because of the 200+ years violation of well-defined and well-known scientific standards.

#1 See ‘Gossip economics’ and 'Delusions of useful idiots'
#2 See ‘The final implosion of MMT
#3 See ‘Modern moronomic theory

***
COMMENT on Dan Lynch, Neil Wilson on Jan 25

Dan Lynch says: “Instead it [economics] should be taught as philosophy, ethics, or religion.”

Now, this is exactly what has happened in the past 200+ years.#1 And this is why economics is a failed science: “... 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) In the same time span, physics went from the Law of Gravity to Quantum Mechanics.

Imagine a philosopher and a guru discussing. Says the philosopher, let’s build an aircraft and fly to a South Sea island and have a good life there. Says the guru, better let’s fly to Tibet and search for spiritual enlightenment there. Enters the physicist with the remark: you folks will go nowhere because you have no idea of the laws of aerodynamics, thermodynamics, material science, etcetera and because of this you will never get anything off the ground.

The situation in economics is analogous. The discussion about capitalism and communism has always been a pointless distraction because economists do NOT know how the monetary economy works. Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and ALL got the foundational concepts of the subject matter, i.e., profit and income, wrong. Economist do not even understand the elementary mathematics of accounting as the discussion about MMT has shown.#2

The primary question is how to get out of the state of a proto-science, fake science, pseudo- science, cargo cult science, failed science ... Certainly NOT with more philosophy or religion or more sitcom blathering.#3

A side issue is how did we get into this mess? The most obvious hypothesis is, because both orthodox and heterodox economists are incompetent, stupid, and corrupt. Your brain-dead posts about capitalism and communism corroborate this hypothesis.

By the way, the economic laws for the monetary economy are the SAME under capitalism and communism just as the laws of aerodynamics are the same whether one flies to the South Sea or to Tibet.#4

#1 See also ‘Economics: Poor philosophy, poor psychology, poor science
#2 See ‘The final implosion of MMT
#3 See ‘From Orthodoxy to Heterodoxy to Sysdoxy
#4 See the First Economic Law on Wikimedia and the Profit Law here

Related 'Gossip economics'

January 23, 2017

Three sickening facts about Keynesianism

Comment on Lars Syll on ‘The inequality gap — five sickening facts’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 24

Paul Davidson argues: “In the GT Keynes noted that the two major faults of the capitalist monetary system was (1) its failure to provide full employment and (2) its arbitrary and inequitable distribution of income and wealth.” (see post Jan 22)

The three facts about the General Theory are:
(i) Keynes messed up the employment theory, see ‘Mass unemployment: The joint failure of orthodox and heterodox economics
(ii) Keynesian deficit spending literally produced the extremely biased income distribution, see ‘Keynesianism as ultimate profit machine
(iii)  Post Keynesians neither detected nor rectified Keynes’s elementary mistakes/errors/ blunders but parrot them until this day, see ‘How Keynes got macro wrong and Allais got it right

Egmont Kakarot-Handtke

Gossip economics

Comment on Barkley Rosser on ‘The Worst Human Being Ever Elected President Of The USA’

Blog-Reference

The title of this blog is EconoSpeak and this suggests that it is, in broad terms, about how the actual economy works. However, the packaging and the content obviously do not fit together. What you get under the bluff package of EconoSpeak is the following.

― Sandwichman’s post of Jan 22 deals with chimpanzee poo-flinging and sums up: “People really need to learn to stop trying to ‘refute’ the ‘alternative facts’ that are being flung. Shit is shit. You cannot refute feces.”

― Sandwichman’s post of Jan 20 deals with the hitherto overlooked erotic dimension of exchange: “This calls attention to the erotic dimension of the sales transaction. Sometimes the commodity isn’t the most auspicious thing being exchanged. Cue the traveling salesman jokes... did you hear the one about Amway Dream Night?”.

― Barkley Rosser’s post brings a historically exhaustive top ten list of corrupt/ pathological/ perverse presidents and places Mr. Trump at the bottom of all nine circles of Dante’s Inferno: “The Worst Human Being Ever Elected President Of The USA”.

The point is NOT whether all this information is true or false but that it has NOTHING to do with the economist’s first priority, that is, to explain how the economic system works. The point is that all this information turns in the given context to disinformation. Worse, moralizing belongs, as a matter of principle, to the sphere of politics and NOT of science. Science is about facts, consistency, and proof.

It is of utmost importance to keep political and theoretical economics apart. 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 scientific standards are observed.

In the given context, the irrelevant posts about chimpanzees and Mr. Trump effectively DISTRACT from the crucial facts: (i) economics is a failed science,#1 (ii) economists are incompetent scientists,#2 (iii) economists’ policy proposals never had a sound scientific foundation, (iv) to determine the “Worst Human Being” in politics or any other walk of life is NOT the business of the economist, (v) economists are the Trumps of science,#3 (vi) Sandwichman and Barkley Rosser are the Trumps of economics.

Egmont Kakarot-Handtke

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 See also ‘Delusions of useful idiots
#3 See ‘Economists: The Trumps of science

***
ADDENDUM on Jan 26

In analogy to Barkley Rosser’s ‘The Worst Human Being Ever Elected President Of The USA’ I would like to nominate Barkley Rosser and Sandwichman as ‘The Worst Human Beings Ever Corrupting Economic Blogs’ because they will suppress this post as they have many times suppressed posts which expose their abject incompetence and stupidity.*

* See for example ‘Gossip economics
***

January 22, 2017

Delusions of useful idiots

Comment on Simon Wren-Lewis on ‘Attacking economics is a diversionary tactic’

Blog-Reference and Blog-Reference on Jan 23

1. When economists daydream they fancy that practical men/politicians/heads of state are the intellectual ‘slaves of some defunct economist’. Keynes’s closing sentence in the General Theory is a fine example of self-delusional grandiosity: ‘... it is ideas, not vested interests, which are dangerous for good or evil’.#1

2. The fact of the matter is that practical men/politicians/heads of state DO NOT listen to economists: “Late in life, moreover, he [Napoleon] 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)

3. Practical men/politicians/heads of state do not take economists seriously but use them as testimonials for already decided policy measures in order to anoint them with some scientific prestige. This is NOT different from selling toothpaste with the testimonial of a man in a white lab coat.

4. In their self-delusion, economists get the causality wrong. Mrs. Thatcher did NOT for one moment intend to put Hayekian economics into practice but employed him as ‘scientific’ legitimation for her union crushing agenda. The same causality holds for FED chairs and their decorative staff of cutting-edge economists.

5. It is of utmost importance to distinguish between political 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 scientific standards are observed.

6. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing). And this is how economics became one of the most embarrassing scientific failures of all times.

7. Economics is NOT part of science but of Circus Maximus. Political economics has produced nothing of scientific value in the last 200+ years. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got the foundational concepts of the subject matter, i.e., profit and income, wrong.

8. The point is this: “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 and this means that economic policy guidance has NO sound scientific foundation.

9. In economics, everything and the exact opposite has already been said sometime, somewhere, by somebody. So it is very easy after every economic calamity to present somebody who ‘saw it coming’ and to shift the blame: “Economists have come up with clear proposals about how to avoid the crisis happening again. And these proposals have been pretty well ignored.” (SWL’s intro)#2

10. It is NOT a divisive attack on economics but a statement of fact that (i) economics is a failed science, (ii) both orthodox and heterodox economists are incompetent scientists, (iii) economic policy guidance never had a sound scientific foundation, (iv) economics is useless except for political agenda pushing or sitcom entertainment.

Egmont Kakarot-Handtke

#1 References, further details, and proofs are given elsewhere, see blog or papers
#2 See also ‘Science does NOT predict the future

Related 'Failed economics: The losers’ long list of lame excuses'

January 20, 2017

Macro poultry entrails reading

Comment on Nick Rowe on ‘AD/AS: a suggested interpretation’

Blog-Reference

Economists think they can answer any question by painting the triad SS-function―DD-function―equilibrium. Leijonhufvud called this analytical tool totem of the micro/totem of the macro. What economists do not understand until this day is that there is NO such thing as an economic equilibrium and NO such thing as SS and DD functions. The totem of micro/macro is a NONENTITY like the Tooth Fairy or the Easter Bunny. This means in turn that the AD/AS analysis is a perfect instantiation of economists’ bad habit of confused interpretation of silly charts, an exercise which is in no way different from the poultry entrails reading of the old Roman haruspex.

Nick Rowe claims: “If you explain the AD/AS framework my way, you will see that it portrays a deep and realistic understanding of macroeconomics that is lost in more ‘sophisticated’ models. If you don’t start with the AD/AS framework you are doing it wrong.”

The plain fact of the matter is that Nick Rowe is in the state of manifest and incurable self-delusion. Keynesian macro in general, and AD/AS in particular, has always been methodologically unacceptable and its proper place is the waste basket.#1

What economists’ in their innate scientific incompetence fail to realize is that the economy as a system is defined by the interrelationship of a number of elementary variables. Every model, no matter how differentiated, must contain these OBJECTIVE SYSTEMIC interrelationships as its formal hard core. This is an imperative methodological necessity.

The false Walrasian microfoundations and the false Keynesian macrofoundations have to be replaced by the true macrofoundations. This is achieved by taking Keynes’s idea of a ‘monetary theory of production’ as the starting point.

(A0) 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.
(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.

The graphical representation of this absolute formal minimum is given on Wikimedia. This chart replaces the hare-brained totem of SS-function―DD-function―equilibrium. A detailed description of the elementary macro relationships has been given elsewhere.#2

The systemic macro axiom set (A1) to (A3) is the one stone that kills, for a start, the Keynesian multiplier, ALL IS-LM models from Hicks onward, ALL AD/AS models, the stickiness argument, and the (Bastard-) Phillips curve including the natural rate hypothesis.#3

This, though, is forever beyond the horizon of the representative economist who flunked the intelligence test already by accepting the totems of micro and macro. If you don’t start macro with (A1) to (A3) you are doing it wrong.

Egmont Kakarot-Handtke

#1 See ‘Keynesianism is broke: Get over it!
#2 See ‘Getting out of IS-LM = Getting out of despair
#3 For details see cross-references Paradigm shift

Mass unemployment: The joint failure of orthodox and heterodox economics

Comment on Asad Zaman on ‘Theory of Employment’

Blog-Reference and Blog-Reference on Apr 4, 2017, adapted to context

Asad Zaman recapitulates: “In chapter 2 of General Theory, Keynes wishes to develop a theory of employment. He claims that classical economics does not have a theory of employment, because it assumes that all resources will be fully employed.”

What can be said after 80 years is that Keynesian employment theory is an abject failure.#1 So, after more than 200 years economists still have no valid employment theory. The ultimate reason is that economists in general and Keynesians is particular are incompetent scientists.#2

Walrasian, Keynesian, Marxian and Austrian economists are groping in the dark with regard to the two most important features of the market economy, that is, the profit mechanism and the price mechanism. The fault lies in the fact that economists argue from the micro level upwards to the economy as a whole. And here the fallacy of composition regularly slips in. To get out of failed economic theory requires nothing less than a full-blown paradigm shift from accustomed microfoundations to entirely new macrofoundations.

In the following a sketch#3 of the correct employment theory is given. The most elementary version of the objective systemic employment equation is shown on Wikimedia.

From this equation 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 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment, a slowdown of growth does the opposite.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete employment equation contains in addition profit distribution, public deficit spending, and the trade balance.

Item (i) and (ii) cover Keynes’s well-known arguments about aggregate demand. Here, though, the focus is on the factor cost ratio rhoF as defined in (iii). This variable embodies the price mechanism which, however, does NOT work as standard economics claims. As a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. This is the opposite of what standard economics teaches.

The systemic employment equation contains nothing but measurable variables and is therefore readily testable. There is no need of further discussion. As always in science, a test decides the matter.

Right policy depends on 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, 1991)

Economists do NOT have the true theory. In their scientific incompetence both orthodox and heterodox economists are ultimately responsible for the enormous social devastations of mass unemployment. Economists are not only fake scientists but a serious hazard to their fellow citizens.

Egmont Kakarot-Handtke

#1 See ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 See ‘Why Post Keynesianism Is Not Yet a Science
#3 For details see ‘Essentials of Constructive Heterodoxy: Employment

January 19, 2017

How the 99 percent can bring overall profit of the 1 percent legally down to zero in 2017

Comment on David Ruccio on ‘Mind the growing gap’

Blog-Reference and Blog-Reference on Jan23 and Blog-Reference on 26 Jan adapted to context

David Ruccio summarizes: “In recent years, corporate profits have been rising because they’ve been able to squeeze their own workers, by forcing more of them to work not for themselves but for corporate giants and, when they do, paying them a smaller and smaller share of the value that is created. ...”

This story has been told again and again since Adam Smith. It is commonsensically convincing but, on closer inspection, nothing but soap box economics. The scientific fact of the matter is that economists do NOT know what profit is. More specifically, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got profit wrong.#1 As Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

By consequence, everything economists have said since Adam Smith about distribution is scientific rubbish.#2 It does not matter which political flag an economist is waving, ALL economists are scientifically incompetent.

The mistake/error/blunder of economists is that they argue from the micro perspective of the firm or the worker. Thus, they inevitably crash against a logical wall. The run-of-the-mill-best-and-brightest economists correctly observe that profit rises, for example, with productivity or increasing monopoly power or lower wages. Now, these factors are indeed effective for a SINGLE firm or a sub-sector. But what is true in partial analysis is NOT true for the economy as a whole.#3 This false generalization is known since antiquity as fallacy of composition. Most of standard economics consists of this fallacy.

For the economy as a WHOLE neither productivity nor monopoly power plays a role; overall profit for the closed investment economy is given by Qm=Yd+I-Sm. Legend: Qm monetary profit, Yd distributed profit, I investment expenditures, Sm monetary saving. With the trade balance and government added the equation becomes a bit longer.

The systemic Profit Law says that for the economy as a WHOLE it is NOT wage income that is the antagonist of profit but monetary saving Sm (see the minus sign). Put the other way round: it is deficit spending/dissaving of the household sector (and the government sector) that is a major profit determinant. Distributed profit, investment and an export surplus are the others.

The height of OVERALL profit is NOT an indicator that American firms are particularly productive or that American business people are particularly smart or greedy or monopolistically. These factors only influence the distribution of profits WITHIN the business sector. Overall profits are in the main the mirror image of GROWING private and public debt.#4

The Profit Law tells the 99 percent how to bring down overall monetary profit to zero: save and pay back your debt. No further action is needed (if prices fall proportionally).#5

ALL commonsensical partial profit theories are false and neither orthodox nor heterodox economists have realized it until this very day. Economics is a failed science and the proof is in the profit and distribution theory.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 See ‘Inequality: Market failure or theory failure?
#3 See ‘How the intelligent non-economist can refute every economist hands down
#4 See ‘Rethinking deficit spending
#5 See also ‘Mathematical Proof of the Breakdown of Capitalism

January 18, 2017

Economics ― worse than fake

Comment on Simon Wren-Lewis on ‘Fake Economics and the media’

Blog-Reference and Blog-Reference

There is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists NEVER got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing). And this is how economics became one of the most embarrassing scientific failures of all times.#1

The fact of the matter is that economists do not know how the actual economy works. They do not even understand the foundational concepts of their subject matter, that is, profit and income.#2

The current state of economics is that of a failed science or what Feynman famously called a cargo cult science. The point is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991)

Economists do NOT have the true theory, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. In other words, since Adam Smith economic policy guidance has NO sound scientific foundation.

Because of this, the claim as expressed in the title ‘Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel’ is false. The Bank of Sweden is, of course, entitled to award prizes but is in NO position to upgrade a cargo cult science to a science. Actually, the Bank is misleading the general public about the dismal state of economics.#3

In their scientific incompetence both orthodox and heterodox economists are ultimately responsible for the enormous social devastations of mass unemployment.#4 Economists are not only fake scientists but a hazard to their fellow citizens.

Egmont Kakarot-Handtke

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 For details and proof see cross-references
#3 See also ‘FakeNews, FakeScience: economics in the information age
#4 See ‘How economists murdered the economy and got away with it

Related 'Economists and the destructive power of stupidity'

***
COMMENT on William Ryan on Jan 21

The statement ‘William Ryan killed JFK’ is true or false and nothing in between. What is likewise obvious is that it can be practically very difficult to establish the truth.

But you announce: “It won’t be long before nobody will know or trust anything about what to believe nobody will really know.”

This may be the case or not but your prophesy of a state of perfect disinformation is entirely misplaced in the present context. What is at issue here is economics understood as science. In science truth is well-defined by material and formal consistency (Klant, 1994). From history we know that it by no means an easy task to establish scientific truth but this does not invalidate the concept: “Tarski’s theory shows that we are fully entitled to use, without any qualms, the words ‘true’ and ‘false’ in their ordinary senses.” (Popper, 1994)

Science is NOT AT ALL about trust or belief or credibility, science is about proof. The problem in economics is that there is political economics and theoretical economics. Political economics has nothing to do with consistency and proof, it is plain and simple storytelling or rhetoric. Political economics is the realm of the Sophist who is since Plato defined by his claim to win any case INDEPENDENTLY of the truth or falsity of the matter.

Accordingly, the ancient Greeks introduced the distinction between opinion (= doxa) and knowledge (= episteme). This distinction parallels the distinction between political economics and theoretical economics and it parallels the distinction between the pseudo and the genuine inquirer: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997)

Can there be any doubt that Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Varoufakis and almost everybody in-between falls into the category of political economist or fake scientist? Fake scientists thrive in the swamp between the rocks of true and false where ‘nothing is clear and everything is possible’ (Keynes).

There is not much use whining about the gigantic heap of rubbish and fake that is called economics. Nothing hinders an economist from leaving the swamp except his own scientific incompetence.

January 16, 2017

Ideology? Incompetence? Fake? Or all this together?

Comment on Asad Zaman on ‘Ideological Macroeconomics & Increasing Inequality’

Blog-Reference

There is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing). And this is how economics became one of the most embarrassing scientific failures of all times.#1

The fact of the matter is that economists do not know how the actual economy works. They do not even understand the foundational concepts of their subject matter, that is, profit and income. This holds for Orthodoxy AND Heterodoxy.

Economists have NO mandate to dabble in politics because (i) this violates the principle of separation of politics and science, and (ii), economists have no true economic theory, in other words, since Adam Smith economic policy guidance has NO sound scientific foundation.

Asad Zaman cites the known absurdities of orthodox employment theory: “According to Lucas, the Great Depression was really the Great Vacation, where vast numbers of people suddenly decided to stop working in order to enjoy leisure.” However, Heterodoxy never managed to replace this obvious rubbish with a valid employment theory.

The short proof goes as follows. The 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 and is defined by these three OBJECTIVE SYSTEMIC 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.

The investment good sector comes in with the second step. So, what we have with (A1) to (A3) is the pure consumption economy as the most elementary economic configuration.

From these elementary, objective, transparent and intuitively convincing premises follows the BASIC version of the employment equation which is shown on Wikimedia.#2 This equation says inter alia: An increase of the overall factor cost ratio rhoF=W/PR leads to higher employment. The complete employment equation is a bit longer and contains in addition profit distribution, public deficit spending, and foreign trade. All these details are not needed at the moment.

The factor cost ratio rhoF as defined above embodies the price mechanism which works very different from what is usually assumed. As a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R, and vice versa. This follows in an unbroken chain of transparent logical steps from A1/A3. The SYSTEMIC employment equation is entirely FREE of green cheese behavioral assumptions, consists alone of measurable variables, and is readily testable.

However, what economists assert since time immemorial is this: “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, 1997)

This is the worst piece of economic analysis and prescription. The advice to lower wages is based on a logically defective theory and leads to ever more unemployment according to the correct employment equation.#2

In their abysmal scientific incompetence, both orthodox and heterodox economists are ultimately responsible for the enormous social devastations of mass unemployment.#3 Consequently, they must immediately be stopped telling the general public that they have valid scientific ideas to save their fellow citizens from mass unemployment, depression, deflation, and stagnation. Both, orthodox AND heterodox economists are fake scientists.

Egmont Kakarot-Handtke

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 Wikimedia
#3 See also ‘Inequality: Market failure or theory failure?

Strange noise in the graveyard of economics

Comment on Noah Smith on ‘Cracks in the anti-behavioral dam?’

Blog-Reference

Economics is a failed science. More precisely, standard/orthodox economics from Jevons/ Walras/Menger to DSGE/RBC/New Keynesianism is scientific rubbish or what Feynman famously called cargo cult science.

Standard economics is built upon this set of foundational propositions, a.k.a. 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, 1985)

Methodologically, these premises are forever unacceptable: (i) The ultimate reason can be stated as an impossibility theorem: NO way leads from the explanation of individual behavior to the explanation of how the economic system works. Because of this, the microfoundations approach has already been dead in the cradle. (ii) The standard/ orthodox/Walrasian axiom set contains THREE NONENTITIES: (a) constrained optimization (HC2), (b) rational expectations (HC4), (c) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. So, standard/orthodox economics is axiomatically false ― it is as simple as that.

The microfoundations speak about human behavior. As a matter of principle, human behavior is the subject matter of psychology, sociology, anthropology etcetera and NOT of economics (Hudik, 2011). The error/mistake/idiocy of half-witted critics, though, has always been in the belief that it suffices to make behavioral assumptions ‘more realistic’. The classical case is the idea to replace the assumption of perfect rationality by bounded rationality.

What instead has to be done is to FULLY REPLACE the standard/orthodox microfoundations with methodologically correct macrofoundations, that is, to change the very definition of economics.

OLD behavioral definitions: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994) “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935)

NEW objective-systemic definition: “Economics is the science which studies how the monetary economy works.”

The move from the old behavioral definition to the new systemic=behavior-free definition of economics is called a paradigm shift. Nothing less will do to get economics out of its proto-scientific deadlock.

Noah Smith has spotted a new trend: “I’m seeing macro people taking behavioral ideas more seriously. ... in macro, most models use Rational Expectations, so let’s think of ‘behavioral’ as just meaning ‘non-RE’.”

To see hope or even progress in this pathetic putting-lipstick-on-a-dead-pig is as self-debunking as it can get. Standard economics is scientifically dead since 140+ years and it will NOT come to life by replacing RE with non-RE.

Egmont Kakarot-Handtke

January 15, 2017

Economics: Poor philosophy, poor psychology, poor science

Comment on Tom Hickey on ‘A philosophical look at economics’

Blog-Reference

The classicals called themselves Political Economists and they never left anybody in doubt what agenda they pushed. However, there was an ambiguity right from the beginning. The classicals also had high scientific ambitions. They were aware that with simple good/bad moralizing they were in the same boat with religion ― a no-go in the age of enlightenment: “The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science, duly extended and generalized.” (Mill, 2006, p. 833)

There was a political need to formulate a new moral philosophy and Adam Smith responded to it: “Adam Smith, when he wrote his Wealth of Nations ... understood by political economy  a branch of the science of the statesman or legislator, ...” (Halévy, 1960, p. 104)

To get economics off the ground as a science made it imperative to say something general about human behavior in the economic realm. John Stuart Mill was the first to state a behavioral axiom: “Just in the same manner [as geometry] does Political Economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained in the existing state of knowledge.” (Mill, 1874, V.46)

Mill regarded this proposition, which includes what today is called rent-seeking as a limiting case, as an empirical law which resembles, but has to be carefully distinguished from, universal deterministic physical laws. Empirical laws are neither deterministic nor universal, they express merely a local and temporary tendency: “In political economy for instance, empirical laws of human nature are tacitly assumed by English thinkers, which are calculated only for Great Britain and the United States.” (Mill, 2006, p. 906)

This can be taken as a real-world description of human nature/behavior in a concrete historical setting. In other words it says that people in the UK/US subscribe to the philosophy of utilitarianism. Mill always remained within the confines of empirical science. However, the methodological question is, what has this rather dull philosophy to do with economics and, more important, with science?

After 200+ years we know that to build economics upon the behavioral assumption of utility maximization leads only to general equilibrium theory ― one of the greatest failures in the history of scientific thought.

The preoccupation with utilitarian folk philosophy, folk psychology, and folk sociology somehow took economists down the wrong path. After 200+ years they still do not know how the monetary economy works.

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

Have economists done their proper job? No (2014). The profit theory is false since Adam Smith gave his contemporaries the moral sentiments and the utilitarian folk philosophy they so urgently needed.

Economists have always been lousy philosophers but, what is worse, they have always been the most incompetent scientists. Today, everybody knows that economics is a failed science.*

Egmont Kakarot-Handtke


References
Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston, MA: Beacon Press.
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL
Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.

* See also ‘Failed economics: The losers’ long list of lame excuses’ and 'True macrofoundations: the reset of economics'

January 14, 2017

Economics is indefensible

Comment on Chris Dillow on ‘On defences and attacks on economics’

Blog-Reference and Blog-Reference

Economics is a failed science, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. More specifically, it is not only so that orthodox/standard/mainstream economics is false as Heterodoxy ritually asserts, but traditional Heterodoxy, too, is false and never provided a valid alternative. What we actually have is the pluralism of false theories.

The current state of economics is that of a cargo cult or fake science. The point is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991)

Economists do NOT have the true theory. Lacking the true theory in turn means that economists do not understand how the monetary economy works and from this follows finally that they are, as a matter of principle, in NO position to give economic policy guidance.

Scientific truth is well-defined by material and formal consistency. The argument that economists have not predicted the 2008 crash is somewhat beside the point because ― as a matter of principle ― scientists do not predict the future.#1 This is the business of political charlatans.

Chris Dillow argues “Quite simply, economists were not, for the most part, responsible for the 2008 crash ...“ This is true but they are indeed responsible for the enormous social devastations of mass unemployment since the Great Depression because unemployment is ultimately the result of a provable false labor market theory.#2

To argue against economists that they have not predicted crises is a mere distraction from the fact that economists are scientifically incompetent and that economics as a whole is a failed science. ALL explanations of failure are mere excuses.#3

Egmont Kakarot-Handtke

#1 See ‘Science does NOT predict the future
#2 See ‘The one stone that kills orthodox and heterodox employment theory
#3 See ‘Failed economics: The losers’ long list of lame excuses

Related 'The united tribe of the scientifically incompetent' and 'Nothing to choose between Orthodoxy and traditional Heterodoxy' and 'Post Keynesianism, science, and universal idiocy' and 'Economists’ last Hurrah' and 'Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn' and 'Economics: The pluralism of false theories is over'

January 12, 2017

The united tribe of the scientifically incompetent

Comment on Noah Smith on ‘Tribal Warfare in Economics Is a Thing of the Past’

Blog-Reference and Blog-Reference

Economics is a failed science, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. More specifically, it is not only so that orthodox/standard/mainstream economics is false as Heterodoxy ritually asserts, but traditional Heterodoxy, too, is false and never provided a valid alternative. What we actually have is the pluralism of well-established false theories.

As a consequence, the heap of scientific rubbish grows with every peer-reviewed issue of ranked quality journals. All grand debates end where they started, that is, in the swamp of conceptual confusion, undecidability, impenetrable mishmash, category error, inconsistent definitions, cross-talk and inconclusiveness. Accordingly, the scientific content of economics textbooks from Samuelson to Mankiw and Rodrik is below the level of a Donald Duck cartoon.

Neither orthodox nor heterodox economists can explain how the economy works and they have no idea how to get out of the deadlock: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman, 1992)

Because economists cannot explain the macroeconomic universe they have (i) regressed to the study of microeconomic molehills which are easy to understand by any half-wit, and (ii), they have formed one big tribe at the lowermost scientific level of anything goes.*

Egmont Kakarot-Handtke

* For details see ‘Failed economics: The losers’ long list of lame excuses’ and 'Economists’s real job problem' and 'Heterodoxy, too, is scientific junk' and 'Economics is indefensible' and 'The economic machine is broken? Don’t call the heterodox repairman!' and 'Economics: The pluralism of false theories is over' and 'Substandard reasoners'

January 11, 2017

Economists’s real job problem

Comment on Justin Fox on ‘Economists Contemplate Life on the Outs’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 18

The current state of economics is that of a cargo cult or fake science. The skirmishes with Mr. Trump cannot distract from the fact that economists are incompetent scientists. The real problem is NOT AT ALL that they are kept out of the new administration. For society the real problem is how economists as fake scientists can be ejected as fast as possible from the scientific community.

For details see:
Inequality: Market failure or theory failure?
Failed economics: The losers’ long list of lame excuses

Egmont Kakarot-Handtke

Related 'Economists cannot do the simple math of profit — better keep them out of politics' and 'Economists and politics: Will you kindly shut up!' and 'The economist as standup comedian' and 'There is NO such thing as an economic expert' and 'Narrative economics and the imperatives of the sitcom'