April 28, 2017

The stupidity of Heterodoxy is the life insurance of Orthodoxy

Comment on Lars Syll on ‘The dangers of neglecting methodology’

Blog-Reference

A theory is the best mental representation of reality that is humanly possible. As Kant put in in 1793: “There is nothing as practical as a good theory.” A good theory is defined by material and formal consistency: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) A theory is the embodiment of knowledge. Knowledge is the very opposite of opinion. Knowledge is valuable, opinion is worthless. Knowledge is the currency in the realm of science, opinion is the currency in the realm of politics. Both realms are disjunct. How does one eventually arrive at knowledge?: “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)

All this is known since more than 2000 years ― except among economists. Economists have talked volumes about methodology but reality is the final arbiter in science. The reality of economics is that it is a failed science, and from this follows that what economists preach and practice as methodology, i.e. the proverbial ‘thinking like an economist’,#1 is plain proto-scientific rubbish. Fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Heterodoxy is NOT methodologically superior to Orthodoxy it merely talks more about methodology.#2 The bottom line of heterodox methodology is the pluralism of false theories, which, of course, is scientifically forever unacceptable.

The methodological blunder of Orthodoxy and Heterodoxy is basically the same. Both suffer from the social science delusion. The fundamental methodological error/mistake has been codified by Arrow: “… all explanations must run in terms of the actions and reactions of individuals”. Heterodoxy replaces classes for individuals, and that’s it. What the representative economist fails to realize is that NO way leads from the understanding of Human-Nature/motives/interests/behavior/action/interaction to the understanding of how the economic system works.

The representative economist focuses on the wrong aspect of economic reality which is the result of human-system interaction. An example makes this clear.

Imagine someone is shown an airplane taking off for Paris. Now the person is asked to explain how it so happens that planes fly. The scientifically incompetent commonsenser explains that this flight takes place because the passengers have a variety of motives to go to Paris, and the crew and the pilot have theirs, and that the airline wants to make big profits, and so on. This is how the Human-Nature explanation of psychology and sociology works. It is scientific rubbish but people are perfectly happy with it.

The competent scientist, in contradistinction, avoids all Human-Nature blah blah and explains flight by the interaction of a bunch of physical laws, e.g. aerodynamics, thermodynamics, gravity, and so on.

Methodologically, the lethal blunder of Orthodoxy consists in starting from behavioral axioms: “… 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)#4

The heterodox critique of Orthodoxy (unrealism, mathiness, ignorance of uncertainty/ reflexivity, etcetera) is not false but remains on the surface. There is only ONE effective critique of a false paradigm and this a new paradigm. As long as Heterodoxy is unable to provide the new paradigm the orthodox zombie cannot be buried.

Egmont Kakarot-Handtke

#1 See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
#2 See ‘Heterodoxy, too, is scientific junk
#3 See ‘Economics is NOT a social science
#4 See also ‘The Krugman curse

Note on Barkley Rosser on political/scientific failure

Blog-Reference  'Financial Times Messes Up On Italy'

I agree, corruption in Italy and elsewhere is a matter to worry about. It is, though, a matter sociology, political science, the police, and the voters have to deal with. The subject matter of economics is how the monetary economy works.

To put this in perspective: physicists do not try to figure out why and how Nero burnt down Rome but they try to figure out the laws of thermodynamics, which hold for all places and all times. Nonscientists are defined by the Fallacy of Insufficient Abstraction, which is the mirror image of Whitehead’s Fallacy of Misplaced Concreteness.

From this follows that the economist as scientist is NOT interested in why “the FT has joined so many other newspapers in just going down the toilet of bad reporting” but is indeed very much interested in why economics has gone down the toilet of bad science.

To come back from the sad state of Italy to the sad state of economics: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Egmont Kakarot-Handtke


Related 'Poland: "What Are These People Complaining About?"' and 'Turkey And The Trend To Authoritarianism'

April 27, 2017

What genuine scientists believe about economics

Comment on Jason Smith on ‘Falsehoods scientists believe about economics’

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When directly confronted with economics, genuine scientists immediately realize that economists are lost in the woods:

“Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)

“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)

But, as a rule, genuine scientists are focused on their own field and simply believe what every layperson believes: “Economics is a scientific field like any other that speaks in the public sphere using theories that are empirically grounded and responds to changes in the data, …” (Jason Smith)

Science is well-defined since 2000+ years: “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)

Economists have simply NOT gotten this vital point. Fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Economics is what the genuine scientist Feynman called a cargo cult science. And this means: “So we really ought to look into theories that don’t work, and science that isn’t science.” Axiomatically false is the death sentence for an approach, that is, it is beyond repair and needs to be fully replaced by a new paradigm. Economists, though, do not feel any urge for a paradigm shift: “… most economists neither seek alternative theories nor believe that they can be found.” (Hausman)

So, economists put lipstick on the dead pig and decorate their pathetic models with the latest gadget from the physics department.* What they are in fact doing is to violate the basic principle of falsification to which all genuine scientists strictly adhere: “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.” (Morgenstern)

What genuine scientists know for sure about economics is that ― after 200+ years ― it is still at the proto-scientific stage: “Economics is simply still a million miles away from the state in which an advanced science is …”. (von Neumann)

Egmont Kakarot-Handtke

* See ‘Toolism! A Critique of EconoPhysics


Related 'Hayek and other informationally retarded proto-economists'

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  1. This comment will be deleted because the author failed to understand that the post above was a joke.

    There is also nothing wrong with not directly measurable quantities in science (the quantum wavefunction is a good example).

April 26, 2017

Ricardian vice and Keynesian confusedness

Comment on Lars Syll on ‘The Ricardian Vice’

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Ricardo is the traditional boogeyman of Heterodoxy: “Ricardo literally invented the technique of economics. … His gift for heroic abstractions produced one of the most impressive models, judged by its scope and practical import, in the entire history of economic theory: seizing hold of a wide range of significant problems with a simple analytical model involving only a few strategic variables, he produced dramatic conclusions oriented to policy action. In short he was the first to master that art that brought success to Keynes in our own day. Not everyone will consider this praiseworthy. Even Schumpeter calls Ricardo’s habit of applying severely simplified abstractions to the solution of practical problems ‘the Ricardian Vice’. And to the Historical School and the American Institutionalists, Ricardo has always stood for everything they detest in orthodox economics.” (Blaug)

In April 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out ― among others ― the idea of comparative advantage which serves until this day as ultimate rationale for free trade. Heterodoxy criticizes Ricardo since 200 years. Time enough, one should think, to spot Ricardo’s pivotal blunder and to come up with a superior alternative.

This did not happen. Keynes, for one, complained that Malthus “failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain”. But Keynes, too, failed to furnish an alternative construction. Keynes subscribed to the Cambridge School of Loose Verbal Reasoning and established himself in the scientific no-man’s land where ‘nothing is clear and everything is possible.’#1

The common blunder of Keynes and Ricardo is the profit theory. Both got the foundational concept of economics wrong: “His [Keynes’s] Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

In his chapter On Profits Ricardo stated that “profits would be high or low in proportion as wages were low or high.” This relationship holds for a single firm but is false for the business sector as a whole. Ricardo committed the classical logical Fallacy of Composition.#2 Overall profit does NOT depend on wages.

What Keynes and Ricardo had in common was a false profit theory and this is the worst thing that can happen to an economist. In 200 years of critique of the Ricardian vice neither Orthodoxy nor Heterodoxy has made any progress. As the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008) The state of economics 200 years after Ricardo is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Since Ricardo, the root of methodological vice and intellectual confusion is scientific incompetence.

Egmont Kakarot-Handtke

#1 See ‘Marshall and the Cambridge school of plain economic gibberish
#2 See ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism

Hayek and other informationally retarded proto-economists

Comment on Jason Smith on ‘Should the left engage with neoclassical economics?’

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Hayes characterizes the corpus of Hayek, Friedman and neoclassical economics as “incredibly powerful, really important, really influential, tremendous amount of incredible insight, helpful for understanding how capitalism works, etc.”

Fact is that Hayek et al. is plain proto-scientific rubbish. No amount of information theory make-up can change the fact that neoclassical economics had already been dead in the cradle 140+ years ago. Some retarded folks, though, have not realized this, among them Jason Smith. He maintains: “One thing that I think needs to be more widely understood is that Hayek did have some insight into prices having something to do with information, but got the details wrong.”

One thing that has to be clearly understood is that there in NO such thing as economics. There are TWO economixes and they are constantly confounded. 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 (= science) has to be judged according to the criteria true/false and NOTHING else. Hayek et al. is provable false. Neoclassical economics has no truth-value, merely political use-value.

Hayek et al. is false because it is based on microfoundations. Microfoundations are defined with this behavioral axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

From these axioms together with some auxiliary assumptions follows what Leijonhufvud called the Totem of Micro/Macro, that is, SS-curve―DD-curve―equilibrium, which is the representative economist’s all-purpose tool.

This approach is false on all methodological counts, that is, supply-demand-equilibrium is a NONENTITY or plain proto-scientific rubbish. Microfounded economics is what Feynman famously called cargo cult science.

Hayek et al. argued that the existing economic system is self-adjusting. He could never prove it in a way that satisfies the criteria of material and formal consistency. Worse, it can be rigorously proved that the market system is NOT self-adjusting.#1

Clearly, economics has to abandon microfoundations altogether and move forward to macrofoundations.

Macrofoundations do away with the brain-dead blather of supply-demand-equilibrium. From macrofoundations follows the correct objective/systemic/behavior-free/testable Law of Supply and Demand which is shown on Wikimedia.#2

Conclusions:
  • Hayek et al. NEVER understood how the price and profit mechanism works.
  • The economic policy guidance of Hayek et al. NEVER had a sound scientific foundation.
  • NOT ONE of the political economists and agenda pushers from Smith to Hayek et al. will ever be accepted as scientist.
  • Hayek et al.’s approach cannot be improved only abandoned because it is axiomatically false.

Egmont Kakarot-Handtke

#1 See ‘Could we, please, all focus on the key question of economics?
#2 For details see ‘Essentials of Constructive Heterodoxy: The Market


Related 'Economists’ proto-scientific shell games' and 'The non-existence of economics' and 'Friedman and the cluelessness of fake scientists' and 'Why Hayek was not a scientist' and 'Krugman is not an economist' and 'Economics: Deadlocked between politics and science' and 'Hayek ― agenda pusher or scientist?' and 'Hayek or how economists miss their subject matter since more than 200 years' and 'Economics: ‘a tale told by an idiot ... signifying nothing’' and 'Hayek was not an economist' and 'Hayek: mad, bad, or just another incompetent economist?' and 'Hayek or how economists miss their subject matter since more than 200 years' and 'Pareto-efficiency, Hayek’s marvel, and the invisible executor' and 'The philosophy of know-nothingers' and 'Keynes, Hayek, Kant' and 'Time to get rid of political economics' and 'Nominal and real distribution'

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REPLY to Bob on Apr 27

You say: “Nothing stopping him [Jason Smith] from addressing AXEC and Bob Roddis over here.”

No way. Jason Smith has removed/deleted not one but several comments that have been posted on his blog Information Transfer Economics. He has even retrofitted his own posts.*

Jason Smith violates basic scientific standards on a daily basis and therefore cannot be invited or admitted to any economics debate whatsoever.

Egmont Kakarot-Handtke

* For my original contributions see:

For Jason Smith’s original contributions you have to urge him to put them back on his blog. I cannot recommend this because the sooner his unqualified blather about economics and physics is forgotten the better.

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REPLY to Bob on Apr 28

(i) There is political economics (= agenda pushing) and theoretical economics (= science).
(ii) Political economics is scientifically worthless since Adam Smith.
(iii) Hayek was a political economist (= fake scientist).
(iv) Hayek’s contribution to theoretical economics is proto-scientific rubbish.
(v) Jason Smith is putting lipstick (= Information Theory) on the dead pig.
(vi) By promoting Hayek, Jason Smith is promoting political economics (= fake science).

It is a curious fact that substandard physicists, mathematicians, and engineers turned in great number to economics. Mirowski has dealt with this phenomenon at great length in More Heat Than Light. It explains why economics is still at the proto-scientific stage.

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REPLY to Tom Hickey, Bob Roddis on Apr 28

The argument about identities/human action is one of the oldest clichés from the long list of lame excuses.#1

Obviously you lack any understanding about the vital difference between political economics (= agenda pushing) and theoretical economics (= science).

Economics is NOT about human behavior but about the behavior of the economic system.#2

Economists (including Hayekians) do until this very day NOT understand how the price and profit mechanism works. This is why they have NOTHING worthwhile to say.#3

#1 See ‘Failed economics: The losers’ long list of lame excuses
#2 See ‘The stupidity of Heterodoxy is the life insurance of Orthodoxy
#3 See ‘Economists and politics: Will you kindly shut up!

April 25, 2017

The Krugman curse

Comment on David Glasner on ‘A Tale of Three Posts’

Blog-Reference

Humans are gregarious animals and therefore take reassurance from being part of the larger crowd and from a casual friendly pat of their leader. Accordingly, David Glasner is overjoyed to report that: “A number of my posts have achieved a fair amount of popularity, … Many, though not all, of my most widely viewed posts were mentioned by Paul Krugman in his blog. Whenever I noticed an unusually large uptick in the number of viewers visiting the blog, I usually found Krugman had linked to my post, causing a surge of viewers to my blog.”

This is a fine success according to the criteria of media-, public relations-, attention-, and reputation management. At second sight it is a comical attempt of two failed economists to mutually beef up their reputation.

David Glasner readily admits all the inconsistencies of standard economics but he is content with supply-demand-equilibrium as an explanation of how the market system works and does not feel any urge for a paradigm shift: “… most economists neither seek alternative theories nor believe that they can be found.” (Hausman) This is self-disqualifying.

Krugman, too, is unwavering committed to the orthodox paradigm: “… 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, too, is self-disqualifying.

Krugman has not realized that both the neoclassical axioms and the Keynesian I=S are false on all methodological counts but applies an inconsistent synthesis of these two inconsistent approaches in order to explain current economic events.#1, #2 But, of course, Krugman is a well-respected loudspeaker of the profession.

What David Glasner has not realized is that economics is what Feynman called a cargo cult science#3 and in this topsy-turvy world holds Shakespeare’s ‘fair is foul, and foul is fair’. This means (i) that any Top-Ten chart tells one what NOT to touch under any circumstances, and (ii), that the approval of Paul Krugman amounts to a confirmation of utter scientific failure.

So, a link from Paul Krugman, Mark Thoma, Brad DeLong and other ‘hearts and souls of the econ blogoshpere’ is not a reason to feel elated and indebted but a curse that follows one beyond the grave. The curse says: We, the mutually interlinked leaders and followers of cargo cult economics will never be accepted in the community of scientists.

Egmont Kakarot-Handtke

#1 See 'Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It'
#2 See ‘The father of modern economics and his imbecile kids
#3 See Wikipedia


Related 'Paul the Menace' and 'Scientific suicide in the revolving door'

Economics and encephalomalacia

Comment on Barkley Rosser on ‘Turkey And The Trend To Authoritarianism’

Blog-Reference

Simon Wren-Lewis correctly observed:#1 “Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics.”

This is an accurate observation ― and it is by no means new. The media have always been in the business of storytelling and it is well-known that this sooner or later leads to general encephalomalacia (softening of the brain).

What Simon Wren-Lewis tried to suggest in his post is that the media are the bad storytelling guys and that economists are the facts-only-truth-telling good guys.

Reality is quite different. It is NOT only the media that is in the business of storytelling but economics, too. But economists’ encephalomalacia is more reprehensible because economics claims to be a science and 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)

And here is the snag: economists do not have the true theory. Economics claims to be a science, yet has never satisfied scientific standards. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Because of his lack of the true theory what the representative economist has to offer is educated common sense, his personal opinion, second-guessing the FED, and interpreting the President’s tweets.

Some economists have given up economics altogether and have regressed to psychological, sociological, political, and historical storytelling. Barkley Rosser has now set new standards with his completely beside-the-point narrative of voting patters, the Sons of Liberty in Texas who fought for the freedom to own slaves, the convergence on an ethnic core based nationalism, Erdogan’s attempt to undo the secular Turkish state of Ataturk and replace it with a neo-Ottoman Empire, and of the confusion that was caused by Trump congratulating Erdogan on his referendum.

Whatever this is, it is NOT economics.

The storytelling of scientifically failed economists like Barkley Rosser has become virtually indistinguishable from the blather of half-witted journalists.#2 This proves that economics has never gotten above the proto-scientific level since Adam Smith: “… 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)

Since 200+ years economists are lousy scientists but good at brain softening.

Egmont Kakarot-Handtke

#1 See ‘Media-fake-farce-fraud-storytelling-macro
#2 See also ‘Politics, storytelling, and science’ and ‘Economics ― from attention and reputation management to science