This blog connects to the AXEC Project which applies a superior method of economic analysis. The following comments have been posted on selected blogs as catalysts for the ongoing paradigm shift. The comments are brought together here for information. The full debates are directly accessible via the Blog-References. Scrap the lot and start again - that is what a paradigm shift is all about. Time to make economics a science.

August 21, 2016

Nothing to choose between Orthodoxy and traditional Heterodoxy

All that has to be said about formalization/mathiness has already been said by the great heterodox economist Georgescu-Roegen: “Lest this position is misinterpreted again by some casual reader, let me repeat that my point is not that arithmetization of science is undesirable. Whenever arithmetization can be worked out, its merits are above all words of praise. My point is that wholesale arithmetization is impossible, that there is valid knowledge even without arithmetization, and that mock arithmetization is dangerous if peddled as genuine.” (1971, p. 15)

There are heterodox AND orthodox economists who cannot get their heads around this still valid summary. These are the retarded folks who do not understand that there is an essential difference between science and non-science. The former is the realm where the criterion true/false applies and NOTHING else (= theoretical economics), the latter is the vast realm of storytelling where anything goes (= political economics). So there are TWO kinds of Orthodoxy and TWO kinds Heterodoxy which have to be kept apart. For an overview of current economics see (2016b) plus description (2016a).

True/false in turn has TWO inseparable aspects: “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, p. 31)

Logical consistency is methodologically secured by the axiomatic-deductive method. This method presupposes firm ground to start with or, as Aristotle put it: “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.”

The fact of the matter is that BOTH orthodox microfoundations and heterodox macrofoundations are false. Because of this, traditional Heterodoxy is not an acceptable replacement of Orthodoxy. The current state of economics is: Walrasianism, Keynesianism, Marxianism, Austrianism is materially/formally inconsistent. Economics is a failed science. This calls for a paradigm shift.

Heterodox macro has been formalized. This is praiseworthy. The problem is that there are different versions of heterodox macro, e.g. Keynes, Kalecki, Minsky, Keen, which are INCONSISTENT. So traditional macrofounded Heterodoxy is formal garbage (2015) (2016c) just as microfounded Orthodoxy. Because there cannot be a pluralism of false theories BOTH approaches have to be replaced by the correct macrofoundations. Nothing less will do. Inconsistency is lethal in science. Game over for Orthodoxy and traditional Heterodoxy.

Georgescu-Roegen said: “What particular reality is described by a given theory can be ascertained only from that theory’s axiomatic foundation.” (1966, p. 361)

And: “In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (1970, p. 9)

Georgescu-Roegen was well aware that the axiomatic foundations of economics are defective. Neither Orthodoxy nor Heterodoxy got this pivotal methodological point until this day.

Georgescu-Roegen was also well aware of his fellow economists’ utter scientific incompetence: “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (1979, p. 317)

This is the very definition of economics as cargo cult science.* The situation since Georgescu-Roegen’s time has become even worse.

You write: “First of all, lots of economists, even including some fairly mainstream ones, are aware that a lot of the axioms of economics are flawed.”

Famously, Keynes was very aware of this 80 years ago. “The classical theorists resemble Euclidean geometers in a non-Euclidean world ...” (1973, p. 16). And he knew that the fault was in what today is called microfoundations: “For if orthodox economics is at fault, the error is to be found not in the superstructure, ... but ... in the premises. (1973, p. xxi)

These formal foundations are conceptually and logically defective because Keynes never came to grips with profit and therefore “discarded the draft chapter dealing with it.” (Tómasson et al., 2010, p. 12).

This was how Heterodoxy started in earnest. The original task of Heterodoxy is NOT to criticize Orthodoxy and to improve it here and there but to REPLACE indefensible scientific garbage and to become the legitimate Orthodoxy. As we know today, Heterodoxy messed up the necessary paradigm shift.

Keynes’s original blunder kicked off a chain reaction of errors/mistakes: (i) all I=S/IS-LM models are false since Keynes and Hicks, (ii) Keynes’s profit conundrum has not been solved by After-Keynesians, (iii) employment and monetary theory is still false.

On the other hand, Orthodoxy went on with their flawed ‘euclidean’ axioms. As Krugman nicely put it “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”

This is the current state of economics: the orthodox microfoundations are flawed since 140 years and the heterodox macrofoundations are flawed since 80 years. As a consequence, all models that contain maximization-and-equilibrium or I=S/IS-LM are a priori false and together this is roughly 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks. Economic policy guidance has NO sound scientific foundation but is plucked from thin air.

From this follows, firstly, that the word ‘sciences’ has to be eliminated from the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The general public has to be informed that the 200 year old claim and the actual state of economics do not match. It follows, secondly, that incompetent scientists have to be expelled from economics regardless of their affiliation to either Walrasianism, Keynesianism, Marxianism, Austrianism or any other failed approach. It follows, thirdly, that the pathetic cargo cult ping-pong between brain-dead Orthodoxy and silly Heterodoxy ends: “So we really ought to look into theories that don’t work, and science that isn’t science.” (Feynman)

And this is what one REALLY sees: The orthodox microfoundations are flawed. The heterodox macrofoundations are flawed. Economics is a failed science. Economists are incompetent scientists.

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity or sys-hum.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to Geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

First Economic Law ®

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best representation of reality that is humanly possible.

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)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory." (Blaug)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... 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)

The Starting Problem or What are your axioms?

"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."

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following 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 elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics paradigm shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from Geo-centrism to Helio-centrism.

Paradigm shift

Walrasianism, Keynesianism, Marxianism, Austrianism is provable false and this requires the shift to an entirely new paradigm

AXEC-Meme

If it isn’t macro-axiomatized, it isn’t economics.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"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)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-the-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"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)

Redefining economics

Old definition, subjective-behavioral:

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

New definition, objective-systemic:

Economics is the science which studies how the monetary economy works.

From proto-science to science

Political economics is scientifically worthless since more than 200 years

Focus

Science is of primary interest and importance. Scientists are of secondary interest. The general public finds it remarkable that one of Einstein’s peculiar habits was to never wear socks. In marked contrast, physicists find alone his field equations remarkable.

With regard to science most people lose focus easily because of a natural preference for anecdotes over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science.The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

Motto

The Scrap-the-lot citation in the intro is from Joan Robinson.

Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution until this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All truths are easy to understand once they are discovered; the point is to discover them.

Galileo Galilei

The Profit Law ®

The Law of Supply and Demand ®

Law of Value ®

Employment equation ®

Time evolution of the economic system ®

The Economics God Equation embodies the open simulation of the elementary consumption economy from t=0 to infinity

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based employment equation states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflationwithout rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment. This is what happens at the moment with the Fed's inflation goal.

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)

Lacking the true theory, economists promote since more than 200 years opinion instead of knowledge.

From microfoundations to macrofoundations

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