March 31, 2017

Methodology for heterodox one-cell-brainers

Comment on Lars Syll on ‘Probability and economics’

Blog-Reference and Blog-Reference on Apr 5

Heterodox economists say that orthodox economics is false and they are right. However, many arguments against Orthodoxy are simply way beside the point. And here a cognitive snag comes in: the random critique of a silly person is not only ineffective but de facto STRENGTHENS the criticized position.

False orthodox economics survives since 140+ years BECAUSE of silly heterodox critique. This fact did not escape Hahn: “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets. Indeed if it is the case that today General Equilibrium Theory is in some disarray, this is largely due to the work of General Equilibrium theorists, and not to any successful assault from outside.”

Two recent examples confirm Hahn’s observation.

John Edensor Littlewood comes forward with this revelation: “Mathematics (by which I shall mean pure mathematics) has no grip on the real world; if probability is to deal with the real world it must contain elements outside mathematics ; the meaning of ‘probability’ must relate to the real world, and there must be one or more ‘primitive’ propositions about the real world, from which we can then proceed deductively (i.e. mathematically).” (See intro)

Yes, but this is only news for economists, NOT for genuine scientists: “In the most fruitful applications of mathematics to the physical world, some nonmathematical axioms also enter. The Newtonian system of mathematical mechanics depends as much on the Newtonian laws of motion and gravitation as it does on the axioms of mathematics.” (Kline)

Lars Syll comes forward with this revelation: “Randomness obviously is a fact of the real world. Probability, on the other hand, attaches (if at all) to the world via intellectually constructed models, and a fortiori is only a fact of a probability generating (nomological) machine or a well constructed experimental arrangement or ‘chance set-up.’”

Yes, but this is what everybody is told in the first hour of every statistics course. The formulas of statistics apply only to genuine random samples. And this is why students are told how to use random number tables and other tools in order to draw proper random samples.

Orthodoxy has NOT to be rejected because many economists are too stupid to apply statistics or mathematics properly. This is a problem that can be fixed with better education or competent peer review. Yet, if the problem is fixed Orthodoxy still has to be rejected because it is axiomatically false.

Heterodoxy complains about one rotten apple after another but never arrives at the idea that the apples are rotten because the roots of the tree are rotten. The only way to get rid of rotten apples is to fell the tree and plant a new one. In methodology this operation is called a paradigm shift. THIS is the proper task of Heterodoxy.

The critique of methodological blunder is the task of referees and NOT a substitute for the necessary paradigm shift. Silly heterodox critique has hitherto effectively prevented a paradigm shift. This is why we have the pluralism of false theories in economics.*

Egmont Kakarot-Handtke

* For details see cross-references Failed Heterodoxy

March 30, 2017

Economists’ eternal problem with methodology

Comment on Lars Syll on ‘The problem with unjustified assumptions’

Blog-Reference

Lars Syll summarizes: “Yes, indeed, econometrics fails miserably over and over again.”

To be sure, it is NOT econometrics that fails but scientifically incompetent economists that fail since 200+ years.

There is theoretical economics and political economics. The goal of theoretical economics is the true theory about how the actual economy works. Scientific truth is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994). Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

Economists fail on both counts. Orthodox and heterodox economists are simply too stupid to apply scientific methods correctly. Needless to emphasize that they always blame the tools for their failure. It is a curious fact that statistics, testing, mathematics and axiomatic-deductive logic work well in the successful sciences but NOT in the failed science of economics. Economists, of course, have thousand excuses why they fail.*

Sander Greenland comes up with this insight about the axiomatic-deductive method: “… since a deduction produces certainty about the real world only when its assumptions about the real world are certain.”

This is known since more than 2000 years ― except to economists: “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)

Neither Orthodoxy nor Heterodoxy is based on certain, true, and primary premises and this is why neither statistics nor mathematics nor logic work in economics. To be clear, this is NOT the fault of statistics or mathematics or logic. More precisely, the foundational assumptions, a.k.a. axioms, of Walrasianism, Keynesianism, Marxianism, Austrianism are provable false. Because of this, NOTHING of scientific value will ever come from it.

Egmont Kakarot-Handtke

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

March 28, 2017

Austerity and the idiocy of political economists

Comment on Simon Wren-Lewis on ‘On criticising the existence of mainstream economics’

Blog-Reference

Unlearning Economics argues: “The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

In other words, UE says, let us put the whole squabble whether economic theory is true or false aside, the real issue is whether a policy measure serves the one-percenters or the ninety-nine-percenters. Economics is progressive if it serves the ninety-nine-percenters and regressive if it serves the one-percenters.

This amounts to abandoning science altogether. The criterion of science is true/false with truth defined as material and formal consistency: “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 problem of economics is that neither Orthodoxy nor Heterodoxy has the true theory. Therefore, the economic policy proposals of BOTH orthodox AND heterodox economists lack sound scientific foundations.

The discussion about austerity delivers the proof of the utter scientific incompetence of political economists. Neither Orthodoxy nor Heterodoxy got the fundamental concept of economics, i.e. profit, right.#1 To make the argument short, the correct profit equation for the economy as a whole is given here as Qm≡Yd+(I−Sm)+(G−T)+(X−M) which reduces to Qm=G−T for Yd, I, Sm, X, M = 0. The reduced macroeconomic profit equation says that the monetary profit of the business sector Qm is equal to the deficit G−T of the public sector. In other words, Public Deficit = Private Profit.

So, from the standpoint of simple self-interest, the one-percenters and their useful academic spokespersons should argue FOR deficit spending and the ninety-nine-percenters and their academic spokespersons should argue AGAINST it. Just the opposite happens since Adam Smith railed at public debt.

The fact of the matter is that the measured increase of the relation between profit and wage income in the past decades has no other cause than the increase of public and private deficit spending. It has NOTHING AT ALL to do with greed, or productivity, or the smartness of business people. These factors only influence the distribution of overall profit Qm between the firms.

Because neither Orthodoxy nor Heterodoxy has the true profit theory#2 their economic policy proposals are counter-productive or regressive for the social groups/classes they speak for. The fact of the matter is that nobody has done more for the one-percenters than deficit spending heterodox economists who claim to “serve a progressive purpose”.

Economic disasters happen since 200+ years because political economists ― both orthodox and heterodox soapbox blatherers ― lack the true theory.#3

Egmont Kakarot-Handtke

#1 For details, references, and proofs see Meta-references, in particular, cross-references Profit.
#2 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)
#3 See also ‘Mass unemployment: The joint failure of orthodox and heterodox economics


Immediately preceding 'The non-existence of economics'.

March 27, 2017

The non-existence of economics

Comment on Simon Wren-Lewis on ‘On criticising the existence of mainstream economics’

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

There is no such thing as economics, there are FOUR economixes and they are constantly played against each other. First, there is theoretical and political economics. The crucial distinction within theoretical economics is true/false, the crucial distinction within political economics good/bad. Economics exhausts itself since 200+ years in crossover discussion, that is, by NOT keeping science and politics properly apart. As a result, it got neither science nor politics right.

Heterodox economists say that orthodox economics is false and in this very general sense, they are right. Heterodox economists have debunked much of Orthodoxy but this has not enabled them to work out a superior alternative. The proper task of Heterodoxy is not the repetitive critique of Orthodoxy but to fully replace it, that is, to perform a paradigm shift: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (Feynman)

Because Heterodoxy has never developed a valid alternative it advocates pluralism, more precisely, the pluralism of false theories. The argument boils down to: if Orthodoxy is allowed to sell their rubbish in the curriculum, Heterodoxy must also be allowed to sell their rubbish. Economics is not so much a heroic struggle about scientific truth but about a better place at the academic trough.

The fact of the matter is that neither Orthodoxy nor Heterodoxy has the true theory and that, by consequence, the political arguments of BOTH sides have NO sound scientific foundation.

Traditional Heterodoxy knows quite well that it has nothing to offer in the way of progressive science and therefore argues for dumping scientific standards altogether and to focus on politics pure and simple: “The case against austerity does not depend on whether it is ‘good economics’, but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.”

This is a good idea, economists should no longer pretend to do science but openly push their respective political agendas, after all, this is what they have actually done the past 200+ years. Neither Orthodoxy nor traditional Heterodoxy satisfies the scientific criteria of material and formal consistency. So, both, orthodox and heterodox economists have to get out of science because of incurable incompetence.

It was John Stuart Mill who told economists that they must decide themselves between science and politics: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

Both, orthodox and heterodox economists violate the principle of the separation of science and politics on a daily basis. Economics is what Feynman famously called cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/Karl Marx. It is high time that economics frees itself from the corrupting grip of politics.

Egmont Kakarot-Handtke


Related 'Economic policy has gone wrong because economic theory has gone wrong' and 'Kick out the king and don’t forget the jesters' and 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy' and 'Modern macro moronism' and 'Austerity and the idiocy of political economists' and cross-references Political economics

***
REPLY to Barkley Rosser on Mar 28

Economics is a cargo cult science. Feynman defined 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 among economists is a proper understanding of what science is all about.

You write: “… his [Vernon Smith’s] most famous experiments were ones in the early 1960s that showed that double auction markets will generally move very rapidly to conventional micro supply-demand equilibria. This fit with Vernon’s view that properly structured markets tend to work well, and he has long had a pretty pro-laissez faire view, including a very positive attitude towards Hayek as well as of Adam Smith.”

Vernon Smith’s blunder consists in concluding from the satisfactory functioning of one market that the market system as a whole functions well, i.e. is stable. This is the Fallacy of Composition which is the defining blunder of scientifically incompetent economists. The fact of the matter is that the grand claim of Adam Smith, Hayek, Arrow-Debreu et al. about the functioning of the market system has NEVER been proven. In fact, just the opposite can be demonstrated.

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

From the correct employment theory follows that an INCREASING average wage rate leads to INCREASING employment. This testable proposition asserts just the OPPOSITE of microfounded cargo cult economics.

The fallacy of composition follows ultimately from Walrasian microfoundations: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

Methodologically, this behavioral axiom set is forever unacceptable. The Iron Law of Economic Methodology says: NO way leads from the understanding of human behavior to the understanding of how the monetary economy works. And this explains why the microfoundations approach has been doomed to failure from the very beginning.

It holds: (i) economic theory cannot be based on assumptions about human nature/ behavior/action, (ii) economics is NOT a social science but a system science, (iii) if it isn’t macro-axiomatized, it isn’t economics.

It is pretty obvious that Barkley Rosser has never grasped this and never will and this applies to the contributors, referees and readers of the Review of Behavioral Economics, the followers of Hayek, and all other scientifically retarded supply-demand-equilibrium economists.*

* See also ‘Austerity and the idiocy of political economists

***
REPLY to Barkley Rosser on Mar 29

You said: “This fit with Vernon’s view that properly structured markets tend to work well, and he has long had a pretty pro-laissez faire view, including a very positive attitude towards Hayek as well as of Adam Smith.”

You said also: “He never made any statement about the general stability or instability of the market system as a whole, even though he is largely pro-laissez faire.”

Wikipedia says: “Being a system of thought, laissez-faire rests on the following axioms:
1. The individual is the basic unit in society.
2. The individual has a natural right to freedom.
3. The physical order of nature is a harmonious and self-regulating system.”

So laissez-faire = “harmonious and self-regulating system” = overall stability. This property has been put into the axioms of the laissez-faire doctrine. This methodological blunder is known since antiquity as petitio principii. Overall stability, which is compatible with partial and temporary instability, has to be PROVEN and NOT put into the premises.

By subscribing to laissez-faire Vernon Smith indeed made a statement about the general stability of the market system. This statement has always been false.*

* See ‘Could we, please, all focus on the key question of economics?

***
REPLY to Blissex on Mar 29

There is genuine pluralism and look-alike pluralism. Heterodoxy advocates the wrong type. In science, pluralism is NOT a virtue, it is what Popper called an immunizing stratagem.

The scientific protocol demands (i) to tackle only questions that allow for clear-cut true/false results (and leave the rest to philosophical wafflers), (ii) to take only materially and formally consistent theories into the corpus of scientific knowledge, (iii) to throw out refuted theories.

Scientific ethic means that the scientific community relies on self-governance which in turn means that everybody sticks to the protocol and accepts refutation if it so happens. This, though, never worked in economics. Morgenstern reminded his fellow economists: “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 situation is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong. So, what we have is the pluralism of false theories. Economics is a failed science but Walrasianism, Keynesianism, Marxianism, Austrianism is still around “as if nothing had happened.” Methodology has been softened to the point of anything-goes by economists to rationalize overt failure.#1 Blaug called this playing tennis with the net down.

Because the representative economist is NOT a scientist but an agenda pusher he feels quite at home in the swamp where “nothing is clear and everything is possible” (Keynes) The beauty of vagueness and ambiguity and inconclusiveness is that it cannot be falsified: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman)

This has always been the life insurance of incompetent scientists. In economics, pluralism is an immunizing stratagem. There is theoretical economics (= science) and political economics (= agenda pushing). Theoretical economics is a failure and political economics is a fraud.

Economics needs a paradigm shift in order to overcome the pluralism of false theories. The takeaway for Heterodoxy and Blissex is: stop rationalizing and justifying proto-scientific methodological rubbish.

#1 For details see ‘Failed economics: The losers’ long list of lame excuses

***
ICYMI on Mar 4

See 'The market economy is inherently unstable and economists never grasped it'

***
REPLY to rjw on Apr 6

You say: “I am not someone who believes all mainstream economics is junk. That would be stupid. Mainstream economics is the product of a lot of smart people working for decades in an established paradigm.”

It is a matter of indifference what you believe. The scientific criteria are true/false with truth objectively defined as material and formal consistency. Science is NOT about belief but about PROOF.

Fact is: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent. Not only mainstream economics is junk but heterodox economics, too.

The one thing that is common to all these failed approaches is that they do not get the fundamental economic concepts profit and income right. This is like medieval physics before the concepts of force, mass, energy, etc. were properly defined and understood.

You say: “Mainstream economics is the product of a lot of smart people working for decades in an established paradigm.” Yes, but this proves NOTHING. Geo-centrism was the product of smart people working more than 1500 years in an established paradigm. Unfortunately, this paradigm was FALSE and they were not smart enough to realize it.

The representative economist is not smart enough to realize that Walrasianism has already been dead in the cradle 140+ years ago and Keynesianism 80+ years ago.

Economics is proto-scientific junk but economists celebrate each year the ‘Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel’. The plural may well be a little excessive.

March 25, 2017

Economics and truth

Comment on Simon Wren-Lewis on ‘Post-truth and propaganda’

Blog-Reference

Based on many pertinent examples, Simon Wren-Lewis criticizes the media for obscuring and trespassing the demarcation line between truth and propaganda. Being a scientist, Wren-Lewis knows that this is a problem that plagued already the ancient Greeks and they solved it ― in principle ― by distinguishing between opinion (= doxa) and knowledge (= episteme) and by specifying truth as material and formal consistency. They were well aware that it is a tough task to draw the demarcation line between opinion and knowledge.

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

Now, everybody is well aware that the media are in the opinion business. To accuse them of propaganda is therefore a bit misleading. Media tell stories and 99 percent of a population pays to get a good story/plausible myth. Scientific truth is simply not a big issue in social communication.

Knowledge takes the form of a materially/formally consistent theory which is the best mental representation of reality that is humanly possible. All scientists know that truth is the pursuit of a minority and certainly NOT of the mass media and their audience. So, it is at first glance rather odd that the economist Wren-Lewis elaborates so intensively on this well-known sociological fact.

At second glance, though, it makes perfect sense. The very characteristic of economics is that there is no clear-cut separation between politics and science. 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).

Economics started as political propaganda and after the failed attempt to become a science it has actually not much more to offer than opinion and propaganda. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong. Economics has NO truth-value, only a political use-value.

Because current microeconomics and macroeconomics is provable false and economists are de facto since 200+ years in the propaganda business they are in NO position to bash the media for propaganda.

Egmont Kakarot-Handtke


Related 'Pre-truth and post-truth in economics' and 'New economic thinking = old political fake' and 'Bad economics, futile critique, and illusive new thinking' and 'Endtime for soap box economists' and 'The thinking economist' and 'Economics between cargo cult, farce, and fraud' and 'Where economics went wrong'

March 23, 2017

Heterodoxy’s chronic thinking incapacity

Comment on Lars Syll on ‘Analogue economies and reality’

Blog-Reference

Heterodox economists say that orthodox economics is false and they are right. Heterodox economists have written tomes about methodology. This, though, has not enabled them to work out a superior alternative to orthodox economics. This is a clear indication that Heterodoxy is methodologically just as deep in the woods as Orthodoxy.

This is obviously the case with Nancy Cartwright. She wonders: “How then do these analogue economies relate to the real economies that we are supposed to be theorizing about? … My overall suspicion is that the way deductivity is achieved in economic models may undermine the possibility to teach genuine truths about empirical reality.”

The problem of Nancy Cartwright and Lars Syll and the rest of Heterodoxy is that they do not understand how science or scientific thinking proceeds.

Peirce put it thus: “The object of reasoning is to find out, from the consideration of what we already know, something else which we do not know.” and “Inference, which is the machinery of logic, is the process by which one belief determines another belief, habit or action. A successful inference is one that leads from true premises to true conclusions.”

Because science tells us something about what has hitherto been unknown the new knowledge cannot come from naive empiricism (except in the case of expeditions).

A fine example for the application of deductivity is how Eratosthenes calculated the circumference of the earth. He applied geometry, which had been axiomatized by Euclid, and the known distance between Syene and Alexandria and his result “may have varied by 0.5 to 17 percent from the value accepted by modern astronomers, but it was certainly in the right range.”#1

It is pretty obvious that deductivity helps to achieve “genuine truths about empirical reality.” These truths cannot be achieved by naive empiricism, common sense, or naked-eye observation.

In an analogous way, physicists determined that the gravity of the moon is 1/6 of earth’s gravity. Physicists did not observe this value but deduced it from the theory of gravity or, more specifically, from the Helio-centric model of the solar system.

The reason why deductivity has not worked in economics is simply because economics is based on false premises, more specifically, because both the Walrasian microfoundations and the Keynesian macrofoundations are false.

Heterodox methodologists do not know what already Aristotle knew: “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.”

Because heterodox economists, too, are scientifically incompetent they never rose above the level of debunking, loose verbal reasoning, and “overall suspicion”. This is NOT the way to successfully replace failed orthodox economics.#2

Egmont Kakarot-Handtke

#1 Encyclopedia Britannica
#2 For details see cross-references Heterodoxy

March 22, 2017

Pre-truth and post-truth in economics

Comment on Peter Dorman on ‘Fifty Shades of Yellow? Post-Truth Then and Now’

Blog-Reference and Blog-Reference

The economist Peter Dorman complains about post-truth spasms that “have characterized media outlets in the English-speaking world ever since the advent of the printing press.” This critique is correct but misplaced. The business of the press has always been storytelling, opinion, entertainment, propaganda, and providing a suitable environment for advertising, but NOT truth. Truth is the mission of science. For the economist this means: “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)

Peter Dorman’s critique of the media distracts from the fact that economics lacks the true theory. Scientific truth is well-defined as material and formal consistency since the ancient Greeks introduced the distinction between opinion (= doxa) and knowledge (= episteme).

Economics claims since Adam Smith/Karl Marx to be a science. Yet, it is pretty obvious ― except to economists ― that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong.

As a cargo cult science economics is since 200+ years at the pre-truth stage but economists tell the general public the post-truth that what they are doing is science. The truth is that the representative economist is a political agenda pusher just like the representative journalist.*

Egmont Kakarot-Handtke

* See also ‘When fake scientists call out on fake politicians

***
REPLY to Barkley Rosser on Mar 23

“A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)

From this incontrovertible fact follows:
(i) Economists lack the true theory. Because the foundational economic concept profit is not properly defined and understood the whole analytical superstructure of economics falls apart.

(ii) Neither Walrasianism, Keynesianism, Marxianism, Austrianism satisfies the scientific criteria of material and formal consistency.

(iii) Neither the defense nor the critique of the market economy ever had sound scientific foundations.

(iv) No economic policy advice ever had sound scientific foundations.

(v) Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Lucas, Dorman, Rosser and almost everybody in-between falls into the category of fake scientist.

(vi) Economics is NOT part of science but of the entertainment industry. The iconic sitcom economist is Krugman who has not realized that IS-LM is false in every methodological dimension but has an opinion on any topic between unemployment, pop music, Joseph Stalin and Donald Trump.

(vii) Economics is what Feynman called cargo cult science or what we today call fake science. In order that economics finally becomes a science, political clowns  have to be thrown out.

March 21, 2017

How economists shoot themselves non-stop in the methodological foot

Comment on Lars Syll on ‘The man who crushed the mathematical dream’

Blog-Reference and Blog-Reference on Mar 24

Heterodoxy tells the world that Orthodoxy is unacceptable. In this general sense, Heterodoxy is absolutely right. What is annoying about Heterodoxy is that it rejects Orthodoxy mostly for the wrong reasons and, worst of all, that it has never developed a superior alternative: “… we may say that … the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend)

One of the most idiotic arguments against Orthodoxy is that it applies the axiomatic-deductive method. The fault in this argument consists in the fact that not the method is false but that the orthodox axioms are false. Standard economics is built upon this set of hard core propositions: “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)

This set of behavioral axioms consists of three NONENTITIES (HC2, HC4, HC5) and the simple fact of the matter is that a theory/model that is based on a nonentity is a priori false. So, Orthodoxy is axiomatically false, which is the death sentence for a paradigm.

Now, Lars Syll argues “any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfill the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics.”

Gödel tells us something about the limits of mathematical axiom sets. These limits are irrelevant for economics just as it is irrelevant for a snail to learn that it cannot surpass the speed of light. The problem of economists is that they cannot apply elementary mathematics correctly. And it is an absurdity of sorts when people who cannot put 2 and 2 together invoke Gödel’s theorem.#1

Economists need elementary arithmetic and algebra and for these bread-and-butter applications Gödel’s theorem is absolutely irrelevant.

From the indisputable fact that both orthodox and heterodox economists do not apply the axiomatic-deductive method correctly does NOT follow that the method is defective but that both orthodox and heterodox economists are scientifically incompetent.

The situation in economics is this: the false Walrasian microfoundations and the false Keynesians macrofoundations have to be replaced by true macrofoundations.#2 The first methodological rule of economics says: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

#1 See also ‘Economics, Gödel, and a would-be field day for math-Luddites’ and ‘The insignificance of Gödel’s theorem for economics’ and ‘It's all over — but for whom?’ and ‘Still in the woods
#2 See cross-references Axiomatization


Related 'From Hilbert’s hotel to Hilbert’s method' and 'The irrelevance of economics' and 'Switching into constructive gear' and 'What engine?' and 'At the Robinson Line' and 'The father of modern economics and his imbecile kids' and 'Where economics went wrong' and 'The end of traditional Heterodoxy in the Malmö coal pit'

***
COPY of Blissex's post

March 27, 2017 at 12:58 am
«no matter what system is chosen, there will always have to be other axioms to prove previously unproved truths»
Oh please this is a decades old huge misunderstanding: Gödel two theorems don’t state anything like that, or anything of wider philosophical importance, they are just narrow technicalities, that say more or less that a mathematical system cannot be used as its own own proof theory to prove that all its own true theorems are provable in it (completeness) and that none of its own false theorems are provable in it (consistency). It is a technicality of interest only for the historical purpose of discussing Hilbert’s programme, and in particular Hilbert’s hope that finitary (in the induction sense, not the size of proof sense) proofs of arithmetic would be possible.
The two subsequent theorems by Gentzen are far more interesting on the topic of the difference between logical provability and logical truth, even if still fairly technical, and they much generalize Gödel two theorems by showing that to prove the completeness and consistency of a mathematical system is possible but only using a system with strictly higher order induction. That has nothing to do with «other axioms to prove previously unproved truths» even if there is a vague similarity.
The Gentzen theorems while quite interesting pose no wider philosophical questions or have any implications like «such deductive-axiomatic economics will always consist of some undecidable statements».
PS A very little noticed detail about Gödel and Gentzen’s theorems is that they are about whether consistency and completeness of a mathematical system can be proven, not whether the mathematical system is in fact complete and consistent
.

New economic thinking = old political fake

Comment on Douglass Carmichael on ‘The Mechanical Turn in Economics and Its Consequences’

Blog-Reference

“With Adam Smith, and hints before in Ricardo and others, economics took the path of treating the economy as a natural object that should not be interfered with by the state. This fit the Newtonian ethos of the age: science was great, science was mathematics; science was true, right and good.” (See intro)

This is as brain dead a summary as can be. First of all, Newton’s philosophy was NOT mechanical at all, just the opposite: “According to one widely held viewpoint in the history of ideas, eighteenth-century thought was dominated by the concept of the ‘Newtonian world-machine.’ God had been assigned the role of master clockmaker who designed a universe so perfect that it could run indefinitely without any need for divine tinkering. Closer inspection of Newton’s own writings shows that he was actually quite firmly opposed to this concept which had been popularized by earlier writers such as Robert Boyle. Newton’s objections were both physical and moral: he pointed to the existence of irreversible processes tending to dissipate motion and gravitational perturbations that seemed to threaten the stability of the solar system, and he warned that restricting God to the creation and design of the world while denying His continual supervision was a step on the road to atheism.” (Brush, 1976, p. 605)

The problem of the philosophical/political/moral wafflers of Adam Smith’s time was that after Newton’s Principia they were no longer taken seriously but had to repackage their loose verbal reasoning as science: “Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics.” (Redman, 1997, p. 111)

Adam Smith, though, correctly recognized that the last thing the general public wants is science: “But he had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along. (Schumpeter, 1994, p. 185)

Adam Smith was a storyteller and soap box economist and the founder of what Feynman called cargo cult science or what we today call fake science. The classical economists presented themselves as an advanced (= scientific) version of Alchemists and goldmakers: “That Political Economy is a science which teaches, or professes to teach, in what manner a nation may be made rich. This notion of what constitutes the science, is in some degree countenanced by the title and arrangement which Adam Smith gave to his invaluable work. A systematic treatise on Political Economy, he chose to call an Inquiry into the Nature and Causes of the Wealth of Nations; and the topics are introduced in an order suitable to that view of the purpose of his book.” (Mill, 1874, V.7)

The classical economists had many faults but it was NONE of their faults that they had a mechanical world view. Their worst fault was that they were NOT scientists but political agenda pushers. Instead of eternal bliss, as their pre-enlightment predecessors did, they promissed material wealth here and now.

The difference between the classics and the neoclassics is that the latter replaced the sociological concept of class by methodological individualism: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994, p. 1)

Economics was NEVER mechanical but always psychological/sociological/political: “The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology …” (Pareto, 2014, p. 20)

Economists NEVER understood what science is all about. The most annoying trait of the run-of-the-mill economist is that he dabbles in sociology, psychology, political science, social philosophy, history, theology, ethics, pedagogy, anthropology, biology, Darwinism/evolution theory, etcetera but has NO idea what profit is. The visible result of manifest scientific incompetence over 200+ years is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal concept of the subject matter, i.e. profit, wrong.

Economists do NOT understand until this day how the price and profit mechanism works. They are like engineers who constantly assert that their aircraft is the best and all passengers realize maximal wellness but who have NO idea about the laws of aerodynamics and thermodynamics, i.e. the OBJECTIVE conditions of flight.

What economists as agenda pushers and incompetent scientists never realized is that economics is NOT a social science but a system science and that there is no such thing as a behavioral/social/historical law but that there are systemic laws and that it is their very task to figure these out.

Economists have not figured out how the price and profit mechanism works because they were too much occupied with blathering and agenda pushing. NO economic policy advice EVER had a sound scientific foundation.

Economics needs a paradigm shift. There can be no doubt about this. But to sell Douglass Carmichael’s repackaging of old political economics as new thinking is a bad joke.

Egmont Kakarot-Handtke


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. URL
Brush, S. G. (1976). Irreversibility and Indeterminism: Fourier to Heisenberg. Journal of the History of Ideas, 37(4): 603–630. 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
Pareto, V. (2014). Manual of Policical Economy. Oxford: Oxford University Press. URL
Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, MA, London: MIT Press.
Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

March 20, 2017

Bad economics, futile critique, and illusive new thinking

Comment on Peter Dorman on ‘Review of Economism: Bad Economics and the Rise of Inequality by James Kwak’

Blog-Reference

Economics claims since Adam Smith/Karl Marx to be a science. Yet, everybody who looks closer into the matter comes to the conclusion that economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong.

In this hopeless situation, critique is futile: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990)

James Kwak, too, has not the slightest idea what a paradigm shift means: “To wrap up, Kwak points out that, whatever its faults, economism delivers by having a simple, all-purpose, easy-to-grasp message and then asks, ‘What’s our message?’ His answer is that wealthy economies don’t need economic growth or even economic efficiency as they used to, and we should all turn away from economic concerns and embrace happiness instead.”*

Instead of coming up with a ‘completely new research program and conceptual approach’ as replacement for the standard approach, which is known to be false on all methodological counts, Kwak dishes out cheap advice from the self-help workshop: don’t worry, be happy. To top it all, this abortive pseudo-critical exercise is advertised as new economic thinking.

Egmont Kakarot-Handtke

* See also ‘The economist’s pick: liar, moron or what?

March 19, 2017

Endtime for soap box economists

Comment on Simon Wren-Lewis on ‘Labour MPs are keeping Corbyn in power’

Blog-Reference

Most people have no proper understanding of what economics is all about. Therefore, 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. A closer look at the history of economic thought shows that theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith, Ricardo, Malthus, Marx, Keynes, Hayek, Friedman, Krugman, Lucas, Wren-Lewis 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. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter, i.e. profit, wrong. Economics is a failed science.

Economists cannot be taken seriously with regard to their own subject matter, much less so with regard to politics. From economists knowledge about how the market system works is expected and NOT a journalistic opinion piece about Trump or Corbyn or May or the internal problems of the Labour Party or the GOP or whatever the current political issue may be.

It is NOT decisive what the political agenda is, ALL of political economics is what Feynman called cargo cult science or what we call today fake science. In order that economics finally becomes a science, soap box economists have to be thrown out.

Egmont Kakarot-Handtke


Related 'The economist as standup comedian' and 'Krugman and the scientific implosion of economics' and cross-references Political economics

March 17, 2017

The thinking economist

Comment on Noah Smith on ‘Beware of "thinking like an economist"’

Blog-Reference

What it means to think like an economist is well-defined: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)

The definition of the subject matter translates into the following hard core 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)

So, thinking like an economist boils down to: “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)

The problem with the maximum-and-equilibrium world is that it consists of NONENTITIES: constrained optimization, rational expectations, equilibrium. One must be a rather feeble thinker to accept these green cheese assumptions as premises of economic analysis. Economists do this since 140+ years.

Those economists who do not subscribe to HC1/HC5 are called heterodox economists. Unfortunately, Heterodoxy is good at debunking but failed to replace the neoclassical starting point with something better. As a result, the current state of economics is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, materially/formally inconsistent, axiomatically false, and ALL got profit, which is the pivotal magnitude of economics, wrong.

No economic advice ever had sound scientific foundations. Obviously, “thinking like an economist” does not yield acceptable results. Noah Smith tries to save the situation and to put some lipstick on the dead pig: “So while “thinking like an economist” is in principle a good thing, beware of people who claim to know how to do it.”

The fact of the matter is that “thinking like an economist” amounts to accepting proto-scientific cargo cultic rubbish as science. No thinking being will ever do this.*

Egmont Kakarot-Handtke

* See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

Related 'How Arrow pushed economics over the cliff' and 'In economics, the scientific breakthrough is always just around the next corner' and 'Where economics went wrong' and 'Economics is NOT a misunderstanding but cargo cultic crap' and 'There is no scientific elite in economics' and 'The economist as standup comedian' and 'Confounding Is and Ought: the economist as moralist' and 'Economists’ proto-scientific shell games'

March 16, 2017

Economics ― from attention and reputation management to science

Comment on David Glasner on ‘Samuelson Rules the Seas’

Blog-Reference

David Glasner starts his post as follows: “I think Nick Rowe is a great economist; I really do. And on top of that, he recently has shown himself to be a very brave economist, fearlessly claiming to have shown that Paul Samuelson’s classic 1980 takedown … of David Hume’s classic 1752 articulation of the price-specie-flow mechanism … was all wrong. Although I am a great admirer of Paul Samuelson, I am far from believing that he was error-free. But I would be very cautious about attributing an error in pure economic theory to Samuelson.”

What is wrong with this? First of all, it is a matter of indifference whether David Glasner thinks that Nick Rowe or Paul Samuelson are great economists and which one of them is greater. This Top-Ten shop talk may be appropriate in sports and entertainment but is entirely misplaced in science. The only thing we want to know about a scientist is whether her/his contribution fits the criteria of material and formal consistency and therefore can be accepted to the corpus of science.

The question whether Archimedes or Euclid or Copernicus or Galileo or Newton or Schrödinger or Poincaré or Hilbert has been the greater scientist is pointless because the very characteristic of a creative achievement is that it is unique and incomparable.

So, the real question is what Nick Rowe and Paul Samuelson contributed to science. The answer is NOTHING.

Nick Rowe fools around with silly models and has not even grasped that IS-LM is logically defective.#1

Samuelson messed up economics back in 1947 with his textbook but his intellectual heirs did not realize it until this very day. In effect, Samuelson established economics as cargo cult science.#2

In Samuelson’s synthesis the defective Walrasian microfoundations and the defective Keynesian macrofoundations were cobbled together.#3 Samuelson’s textbook consisted of two halves: micro and macro. Needless to emphasize that the whole thing was inconsistent.

Science is committed to material and formal consistency. Samuelson’s textbook had arguably the lowermost scientific content of all textbooks ever written. Standard supply-demand-equilibrium will forever stand out as the silliest model in the history of sciences.

And this is what we have today. There is Orthodoxy with behavioral microfoundations and Keynesianism with structural/systemic macrofoundations. Both these formal foundations are still conceptually and logically defective and incompatible.#4

By comparing the relative merits of what he introduces as great thinkers David Glasner obscures the fact that neither Rowe nor Samuelson deserves the title of a scientist. In effect, David Glasner reinforces the false impression among the general public that economics is a science while it has never been anything else than a cargo cult science. The hazard of proto-scientific economics is that well-meant cheer leading unwittingly turns into a public support for scientific impostors.

Science is about true/false and NOTHING else.

Egmont Kakarot-Handtke

#1 See ‘Nick Rowe: Bury me at the end of coal-pit
#2 See Wikipedia
#3 See ‘The father of modern economics and his imbecile kids
#4 See ‘Where economics went wrong

Humble pie economics: the next fake

Comment on Peter Dorman on ‘Where Should We Put Economic Empiricism on the Hubris-Humility Spectrum?’

Blog-Reference and Blog-Reference on Mar 17

Hubris/humility is the proper issue for psychologists. Economists, on the other hand, are supposed to figure out how the economy works. More, what is expected from economists is not storytelling about economic events or comments on economic policy or psychological self-reflection but 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)

The sole criterion to judge economists is whether economic theory is scientifically true/false and not whether they are arrogant/humble or likable/unlikable or conservative/liberal or whatever the sitcom characteristic may be. Scientific truth is well-defined since 2000+ years as material and formal consistency.

From scientists knowledge is expected and NOT the humble confession that they know nothing because reality is complex and uncertain and unknowable.#1

Knowledge, though, is not what economists have to offer. Walrasianism, Keynesianism, Marxianism, Austrianism are axiomatically false. But make no mistake, economists are rather comfortable in their proto-scientific swamp where “nothing is clear and everything is possible” (Keynes) and where scientific incompetence reaffirms itself with phrases like there is no truth, empirical tests are always inconclusive, all models are false, and the self-deception that the pluralism of false theories is a proof of tolerance and not of failure.

The current wave of empiricism and humility is just another exercise in reputation management and another example for the cargo cultic crap which economists produce and consume since 200+ years.#2

Egmont Kakarot-Handtke

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 See ‘Where economics went wrong

March 15, 2017

Economics between cargo cult, farce, and fraud

Comment on Jason Smith on ‘How do you know if you’re researching in bad faith?’

Blog-Reference

Economists claim to do science but obviously lack any deeper understanding. Feynman put is 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.”#1

What is missing is a proper understanding of what science is all about. The goal of theoretical economics is 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)

Economists do not have the true theory. The original methodological blunder of economics is given with the Walrasian microfoundations: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

Methodologically, these premises are forever unacceptable. It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. Its proper place is the waste basket.

Because it is built on vacuous axioms, economics is a cargo cult science since 140+ years. As far as economists have not realized this, economics is a farce. As far as economists have realized it but are telling the general public that they are doing science economics is a fraud.

Jason Smith’s own blog is simply a bad cargo cultic joke.#2

Egmont Kakarot-Handtke

#1 See ‘Cargo cult science’ on Wikipedia see also Tavares ‘The Farce That Is Economics: Richard Feynman On The Social Sciences
#2 See thread ‘The key to macro and Keen’s debt-employment model


Related 'Economists: Incompetent? Stupid? Corrupt?' and 'Failed economics: The losers’ long list of lame excuses' and 'Needed: The Worst of the Worst of economics blogs' and 'Needed: the Top Ten of substandard economics blogs' and 'Gossip economics' and 'Media-fake-farce-fraud-storytelling-macro' and 'Economists: scientists or political clowns?' and 'There is NO such thing as an economic expert' and 'The economist as standup comedian' and 'The end of political economics' and 'Scientists and science actors' and 'The real problem with the economics Nobel' and 'Economics is not a science, not a religion, but proto-scientific rubbish'

***
REPLY to MRW on Mar 16

You say: “[Paul Davidson] Gave a one-hour lunch talk to econ students at the Univ of Chicago and kept muttering under his breath how uneducated they were.”

Heterodox economists are always right telling the students at the Univ of Chicago that they are proto-scientific morons. But the problem of heterodox economists in general and Paul Davidson in particular is that Post Keynesianism, too, is axiomatically false.#1

The point to grasp is that economics needs a paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#2

#1 See ‘Why Post Keynesianism Is Not Yet a Science
#2 See ‘If it isn’t macro-axiomatized, it isn’t economics

Rethinking the Distribution

Comment on David Ruccio on ‘Changing the story to hide the problem’

Blog-Reference

David Ruccio writes: “Now that the wage share has clearly fallen, and shows no signs of returning to its previous levels, economists have changed their story. In their view, market concentration leads to a lower, not higher, wage share. Why has there been such an about-face in economists’ story about the causes of the declining wage share?” (See intro)

The simple answer is that distribution theory is false because profit theory is false. The fact of the matter is that economists have NO idea about what profit is. This holds for the four main approaches Walrasianism, Keynesianism, Marxianism, Austrianism.

The profit theory is false since Adam Smith.#1 Economists have NO idea about the pivotal magnitude of their subject matter. David Ruccio is right in criticizing that there is no valid distribution theory. But he himself is entirely lost in the woods. He maintains: “The actual rule, as it turns out, is that the wage share falls, as the rate of exploitation increases.” This heterodox rubbish is the complement to orthodox rubbish.#2

As Mirowski put it: “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” No surprise then, that the distribution theory is a complete scientific failure.#3 Time to end economists’ storytelling and to throw ALL these incompetent orthodox and heterodox blatherers out of science.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith
#2 See ‘Rethinking the Profit Law
#3 See ‘Where economics went wrong

March 13, 2017

How Arrow pushed economics over the cliff

Comment on Lars Syll on ‘Kenneth Arrow (1921-2017)’

Blog-Reference and Blog-Reference on Apr 8 adapted to context

The inevitable failure of economics started with Jevons/Walras/Menger but Arrow gave the final push with this fundamental methodological specification: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994)

The definition of the subject matter translates into the following hard core 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)

Obviously, this axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. By consequence, General Equilibrium Theory of the Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.

Egmont Kakarot-Handtke


Related 'Where economics went wrong' and 'Economics is NOT a misunderstanding but cargo cultic crap' and 'Modern macro moronism' and 'There is no scientific elite in economics' and 'Note on Lars Syll on Axiomatization' and 'Economists ― medics or barber surgeons?' and cross-references Axiomatization and cross-referenes Paradigm shift

***
REPLY to Norman L. Roth on Mar 15

You say: “You appear to be unaware of the great John Stuart Mill’s wisdom about the nature of axioms.”

What John Stuart Mill said about methodology is this: “In the definition which we have attempted to frame of the science of Political Economy, we have characterized it as essentially an abstract science, and its method as the method à priori.”

The foundational question for the application of what today is called the axiomatic-deductive method is what the axioms are: “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.” (Mill)

It was pretty obvious to Mill that the axiomatic-deductive method is NOT a formal exercise that is detached from reality, just the contrary: “The ground of confidence in any concrete deductive science is not the à priori reasoning itself, but the accordance between its results and those of observation à posteriori.”

Mill’s understanding of methodology is IDENTICAL with that of modern physics: “He [Dirac] identified three revolutions in modern physics ― relativity, quantum mechanics, and cosmology ― and hinted that he expected them one day to be understood within a unified framework. Although he did not mention John Stuart Mill, Dirac was seeking to answer the same question posed in A System of Logic: ‘What are the fewest general propositions from which all the uniformities existing in nature could be deduced?’” (Farmelo)

The inexcusable scientific blunder of Arrow consists in messing up the axiomatic foundations of economics. More precisely, methodological individualism and the neo-Walrasian axiom set HC1/HC5 (above) are one of the greatest embarrassments in the history of the sciences.#1

Only scientific imbeciles like the representative economist accept green cheese behavioral assumptions like constrained optimization, rational expectations, and equilibrium as axiomatic foundations of economics.#2 General Equilibrium Theory is what Feynman called cargo cult science and Arrow was a fake scientist. All this follows from the methodological wisdom of the great John Stuart Mill.

#1 For details see ‘Economics is NOT a misunderstanding but cargo cultic crap’ and ‘Where economics went wrong
#2 See ‘If it isn’t macro-axiomatized, it isn’t economics

***
REPLY to mulp on Apr 9

To put equilibrium (HC5) into the premises/axioms is a methodological blunder that is known since antiquity as petitio principii.#1

Your argument: “Zero sum is … one of the truest axioms in nature. Thus economics must be zero sum.” is beside the point because zero sum and equilibrium are two entirely different things.#2

To be axiomatically false is the death sentence for a paradigm. Therefore it holds: (i) because of material/formal inconsistency General Equilibrium Theory can never be admitted to the corpus of science; GET is cargo cult science, (ii) Arrow can never be admitted to the scientific community, (iii) because the representative economist does not understand what science is all about he has not realized (i)/(ii) until this very day.

GET and its acceptance by economists is one of the greatest embarrassments in the history of science.

#1 For details see here.
#2 The zero sum law says Qm+Sm=0, see here.

Note on Lars Syll on Axiomatization

Blog-Reference

With regard to the standard rationality axioms in economics Alan Kirman maintains: “My main problem is that none of these axioms is taken by observing lots and lots of people.”

This is true but NOT the critical point. The critical point is that there is NO such thing as an axiom of human behavior to begin with. But there are objective systemic axioms and economics has to be based on these. Economics is NOT a social science but a system science.

Methodological rule #1: If it isn’t macro-axiomatized, it isn’t economics. For details see: ‘From false micro to true macro: the new economic paradigm

By the way, it is a rather sheepish idea of scientific dilettantes that axioms come directly from observation: “If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any right to hope that we shall find the correct way?” (Einstein)

Physicists did, economists did not.

Egmont Kakarot-Handtke


Related cross-references Axiomatization

Note on David Glasner on Cyclical versus Secular Causes of Stagnation

Blog-Reference

You say: “Nick Rowe and Scott Sumner have recently had an interesting little debate about whether the slowdown in real GDP growth and labor productivity since the 2007-09 downturn is the result of cyclical or secular factors.”

The participants of the interesting little debate failed to mention that the ultimate cause of mass unemployment, deflation, and stagnation is the scientific incompetence of economists. The labor market theory is false since Smith, Ricardo, Malthus et al. had their interesting little debates. For details see: ‘Mass unemployment: The joint failure of orthodox and heterodox economics

Egmont Kakarot-Handtke


Related 'How economists murdered the economy and got away with it' and cross-references Employment

March 12, 2017

In economics, the scientific breakthrough is always just around the next corner

Comment on Noah Smith on ‘Anti-empiricism is not humility’

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

The scientific method is well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

All this is clear in principle since the ancient Greeks but economists simply never got it. The very characteristic of economics is that it does not realize BOTH material AND formal consistency but oscillates between theory without measurement and measurement without theory.

After even the dullest economist has realized that DSGE/RBC/New Keynesianism has no counterpart in the real world the flight to empiricism is in full swing: “Empirical economics is taking over the profession.” (See intro)

The main goals of this new movement are:
― To “recapture some of the public respect that it’s lost over the last decade”
― “We’d all like economists to be more humble, right?”

In other words, we have to do something in terms of image branding and customer retention. The general public is said to have enough of arrogant experts, incomprehensible abstractions, pesky mathiness, and the inability to predict the next crash.#1

Not only this: “That’s what natural science looks like ― a small number of theory papers, supported by a very large base of applied theory and empirical work. It’s the sign of a mature field.”

The problem with economics, though, is that it is NOT a mature field. Just the contrary. Economics languishes since 200+ years at the level of a proto-science. The representative economist is in a state of incurable self-delusion. Until this day, economists have not even gotten the foundational concepts profit and income right.#2 This is like medieval physics before the concepts of mass, force, energy were consistently defined and properly understood.

Economists claim to do science but obviously lack any deeper understanding. Feynman put is 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.”#3

What is missing is a proper understanding of what science is all about. The goal of theoretical economics is 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)

Economists do not have the true theory. But without the true theory empirical work is a cargo cultic exercise: “And in the social sciences it is even more obvious than in the natural sciences that we cannot see and observe our objects before we have thought about them. For most of the objects of social science, if not all of them, are abstract objects; they are theoretical constructions.” (Popper)

The economy is, clearly, an abstract object. Empiricism, realism, common sense, and loose verbal reasoning are always popular but do not cut much ice. Science goes beyond common sense and requires some abstraction. The functioning of the price and profit mechanism for the economy as a whole cannot be observed with naked eyes but only with the third eye of theory.

The current wave of empiricism and humility is just another instatiation of fake science. The only thing the representative economist can do to further the progress of economics is to throw himself under the bus.

Egmont Kakarot-Handtke

#1 See ‘New economic thinking, or, let’s put lipstick on the dead pig
#2 See ‘How the intelligent non-economist can refute every economist hands down
#3 See ‘Cargo cult science’ on Wikipedia


Related 'Where economics went wrong' and 'There is no scientific elite in economics' and 'A vacuous analysis of profits and productivity' and 'Economics between mathiness, dyscalculia and idiocy' and 'Modern macro moronism' and 'If it isn’t macro-axiomatized, it isn’t economics'

***

COMMENT  Practical recommendations for economics methodology on Mar 17

(i) The problem of economists is NOT arrogance but incompetence. Because of this, humility is NOT the solution.

(ii) If one puts NONENTITIES into the axioms (constrained optimization, rational expectations, equilibrium) one runs with absolute necessity into the identification problem. This problem cannot be overcome with more empiricism or better statistical technique but only by retiring cargo cult scientists who proudly announce “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)#1

(iii) The subjective-behavioral starting point of standard economics has to be fully replaced by objective-systemic axioms from which testable propositions readily follow.

(iv) Economists, who have not yet arrived at something akin to Archimedes’s Law of the Lever, should not invoke Heisenberg’s Uncertainty Principle in a methodological discussion.

(v) Economists, who cannot handle elementary mathematics,#2 should not invoke Gödel’s Incompleteness Theorem in a methodological discussion.#3

(vi) If it isn’t macro-axiomatized, it isn’t economics.

#1 See ‘How Arrow pushed economics over the cliff
#2 See ‘How the intelligent non-economist can refute every economist hands down
#3 See ‘Economics, Gödel, and a would-be field day for math-Luddites

March 11, 2017

Where economics went wrong

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

Blog-Reference and Blog-Reference adapted to context and Blog-Reference on Mar 13

Lars Syll identifies the point where he believes economics went off the rails: “The main problem with mainstream economics is its methodology. The fixation on constructing models showing the certainty of logical entailment has been detrimental to the development of a relevant and realist economics. Insisting on formalistic (mathematical) modeling forces the economist to give upon on realism and substitute axiomatics for real world relevance. The price for rigour and precision is far too high for anyone who is ultimately interested in using economics to pose and (hopefully) answer real world questions and problems.”

It is obvious, methodology is a major problem of economics. More precisely, neither orthodox nor heterodox economists apply the scientific method correctly. This started with Adam Smith and has not changed since then.

To recall, the classicals called themselves Political Economists. Therefore, 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.

The last thing political economists do is to comply with well-defined and well-known scientific standards: “As some one has said, it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another.” (Fisher)

The quite natural outcome has been that political economics, which had dominated theoretical economics from the very beginning, has produced NOTHING of scientific value in the last 200+ years.

Let us locate exactly the point where economics went scientifically wrong. Smith’s method consisted of common sense and loose verbal reasoning: “Smith … disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Smith defined total income and what we today call GDP as: “Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value.#1

With this seemingly commonsensical definition, Smith got profit, the pivotal magnitude of economics, wrong. Needless to emphasize that neither orthodox nor heterodox economists rectified Smith’s foundational blunder until this day.

Realism, common sense, and loose verbal reasoning are always popular but do not cut much ice. Science goes beyond common sense and requires some abstraction. The functioning of the price and profit mechanism for the economy as a whole cannot be observed with naked eyes but only with the third eye of theory. So let us identify exactly where economics went wrong and fix the profit and price theory.

For the determination of monetary profit of the economy as a whole one has to start with the most elementary case of a pure production-consumption economy without investment, government and foreign trade.#2 In this elementary economy three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

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

It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.

It is important to note that (1) overall monetary profit is entirely INDEPENDENT of the average productivity of the business sector, and (2), NO share of output corresponds to monetary profit. This tells us that the familiar distribution theories are false.

When distributed profit Yd, investment I, goverment expenditures G and taxes T are added the correct profit equation reads Qm=Yd+I-Sm+G-T.

In other words, deficit spending of the household and government sector and profit distribution of the business sector are the determinants of total monetary profit in the market economy. Total profit has NOTHING to do with marginal costs or productivity or exploitation or monopoly power or the smartness of CEOs. These factors can only influence the DISTRIBUTION of total profit BETWEEN firms.

The lethal blunder of Walrasianism, Keynesianism, Marxianism, Austrianism is that ALL four approaches lack the true profit theory. And this is the ultimate reason why economics is a failed science. The main problem of economics is the scientific incompetence of economists.

Better to get accustomed to the fact that neither orthodox nor heterodox economists can be taken seriously. NOT ONE of their economic policy proposals ever had a sound scientific foundation. It is brain-dead political blather since 1790, when Adam Smith completed the last revision of The Wealth of Nations. Economics is a fake science since then.

Egmont Kakarot-Handtke

#1 See ‘Wealth of Nations
#2 The macrofoundations approach starts with three systemic (= behavior-free) axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.