December 3, 2016

The disutility of debunking NAIRU

Comment on Lars Syll on ‘NAIRU — a false hypothesis’

Blog-Reference

The current state of economics is this: Walrasian microfoundations are false since 140 years and Keynesian macrofoundations are false since 80 years.#1 By consequence employment theory, too, is false and this, of course, includes NAIRU.#2 What is urgently needed are the true macrofoundations and the true employment theory.

Because employment theory is false, economic policy guidance regularly worsens the situation, that is, economists bear the intellectual responsibility for unemployment, deflation, depression, stagnation.#3

Make no mistake, there is NO such thing as good guys and bad guys in economics. There is only scientific incompetence since 200+ years. Orthodox economics is false and Heterodoxy has never produced the valid replacement. The current debate about full employment/ NAIRU has no more substance than professional wrestling.

The true theory of the market economy is neither to be found in the Walrasian, nor the Keynesian, nor the Marxian, nor the Austrian school. The four major approaches are axiomatically false, that is, beyond repair. Joan Robinson summarized the situation in six words: “Scrap the lot and start again.” All else is a waste of time.

Egmont Kakarot-Handtke

#1 See paper ‘The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#2 See posts ‘NAIRU ― a folk psychological hallucination
The very serious blunders of very serious people
False theory makes wrong policy: economics as loose cannon
Naive arithmetic
#3 See ‘How economists murdered the economy and got away with it

The disutility of debunking Econ 101

Comment on James Kwak on ‘Economics 101, Economism, and Our New Gilded Age’

Blog-Reference and Blog-Reference and Blog-Reference

All are agreed: Econ 101 is rubbish.#1 However, there is not much use to debunk it over and over again. What is needed 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)

The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks#2 nor in the newspapers nor in the history books.

Because standard employment theory is false, standard economic policy guidance regularly worsens the situation, that is, economists bear the intellectual responsibility for unemployment, deflation, depression, stagnation.#3

In order to get rid of Econ 101 a paradigm shift is needed: “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)

This is the current state of economics: Walrasian microfoundations are false since 140 years and Keynesian macrofoundations are false since 80 years. What is urgently needed are the true macrofoundations and the true employment theory#4 and NOT just another debunking exercise.

The sooner Econ 101 is forgotten, the better. The sooner the blathering ‘throng of superfluous economists’ (Joan Robinson) is fired, the better.

Egmont Kakarot-Handtke

#1 For details see cross-references Econ 101
#2 See ‘The father of modern economics and his imbecile kids
#3 See ‘How economists murdered the economy and got away with it
#4 For details see cross-references Employment

December 1, 2016

Rethinking the Profit Law

Comment on David F. Ruccio on ‘Value and the Marxian critique of political economy’

Blog-Reference

David F. Ruccio writes: “When I ask students to compare Marx’s theory of profits with the neoclassical theory of profits, they have no idea what I’m talking about.”

It’s worse, economists in general have NO idea about what profit is. This includes the four main sects Walrasianism, Keynesianism, Marxianism, Austrianism. The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)

The profit theory is false since Adam Smith.#1 Economists have NO idea about the pivotal magnitude of their subject matter. This includes, of course, David F. Ruccio.#2

There are three things that are intertwined but have to be analytically kept apart: (i) Theory of Value, (ii) Theory of Profit for the economy as a WHOLE, (iii) DISTRIBUTION of overall profit between sub-sectors (production, banking, land use, etc.) and individual firms.

The Law of Value says that relative prices in the pure consumption economy are inverse to the productivities.#3 This Law replaces the Labour Theory of Value.

The Profit Law for the pure consumption economy says that OVERALL profit depends on the expenditure ratio and the distributed profit ratio.#4, #5

It holds in particular:
• Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit maximizing behavior. These subjective factors are IRRELEVANT. Profit for the economy as a whole is OBJECTIVELY determined.
• Profit/loss of the business sector is, in the simplest case, determined by the increase/decrease of household sector’s debt.
• Wage income is the factor remuneration of labor input. Profit is NOT a factor income.
• There is no relation at all between profit, capital, marginal or average productivity.
• Profit has NO real counterpart in the form of a piece of the output cake. Profit has a monetary counterpart.
• The existence and magnitude of overall profit does not depend on the ownership of the firms that comprise the business sector. The Profit Law is the SAME in capitalism and communism.
• It is an elementary mistake to maintain that total income is the sum of wages and profits.

The classical/Marxian/neoclassical and the Keynesian/Post-Keynesian theories of value/profit are provable false or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” One thing has always been equally distributed between the major economic sects, viz. scientific incompetence.

Egmont Kakarot-Handtke

#1 ‘The Profit Theory is False Since Adam Smith
#2 ‘Profit for Marxists
#3 ‘The Pure Logic of Value, Profit, Interest
#4 ‘Essentials of Constructive Heterodoxy: Profit
#5 See the Profit Law for the pure consumption economy on Wikimedia

Rethinking deficit spending

Comment on Roger Farmer on ‘Three Facts about Debt and Deficits’

Blog-Reference

You say: “Economics has the reputation of being the dismal science.” The most dismal thing about economics is that it is NOT a science.#1

In order to understand the failure of economics in general and Walrasianism, Keynesianism, Marxianism, Austrianism in particular one has first of all to realize that there is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing).

It holds: “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. This holds also for Keynesianism and the concept of deficit spending. What Keynes and the After-Keynesians never understood is the all important relationship between deficit and profit.

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

This two-liner is defective because Keynes never came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Keynes had NO idea of the fundamental concepts of economics, viz. profit and income. Because profit is ill-defined the whole theoretical superstructure of Keynesian macroeconomics falls apart.#2

But things are even worse. Because economists in general and Keynesians in particular do not understand profit they do not understand what deficit spending really means: “When government is added to the pure consumption economy then it holds under the condition of zero investment of the business sector and zero saving of the household sector Qm=G-T, that is, the overall monetary profit of the business sector is positive if the government sector runs a deficit and negative if the government sector runs a surplus.”#3 In simple terms: government deficit = business profit.

Whatever Keynes intended or argued about deficit spending is irrelevant. Because he did not understand the elementary economic relationship between deficit and profit, he de facto initiated the greatest profit boost in the history of humankind. The actual distributional problems are ultimately the handiwork of Keynes. In fact, no economist has done more for the one-percenters than Keynes.#4

You cite three trivial facts about deficits and debt and have NO idea about the most important fact, that is, the relationship between deficit and profit.#5

Egmont Kakarot-Handtke

#1 See ‘FakeNews, FakeScience: economics in the information age
#2 See ‘From false micro to true macro: the new economic paradigm
#3 See ‘Wikipedia and the promotion of economists’ idiotism
#4 See ‘Keynesianism as ultimate profit machine
#5 For details about scientific incompetence see cross-references Incompetence

***
REPLY to franco on Dec 2

The paper you refer to (Levy et al., 2008) indeed addresses the fundamental issue of economics ‘Where Profits Come From’ but gives the wrong answer. For the formal refutation of the Levy approach see the working paper ‘Keynes’s Missing Axioms’ (2011b)

For the correct explanation see ‘The Emergence of Profit and Interest in the Monetary Circuit’ (2011a).

The lethal error/mistake/blunder of the Levy approach consists in starting with Saving = Investment (2008, p. 6).

For the most elementary explanation of why Saving = Investment has ALWAYS been false and of why Saving = Loss resp. Dissaving = Profit is true see (2015).*

References
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–22. URL
Kakarot-Handtke, E. (2011b). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–33. URL
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Levy, D. A., Farnham, M. P., and Rajan, S. (2008). Where Profits Come From. pages 1–28. URL

* See also cross-references ‘Refutation of I=S’ and in particular ‘The final implosion of MMT

November 30, 2016

Rethinking the multiplier

Comment on Mark Thoma on ‘Infrastructure, jobs and wages: It’s not so simple’

Blog-Reference

Standard economics is known to be axiomatically false. This implies that the familiar theory of the multiplier is also false. This in turn means that economic policy proposals have no sound scientific foundation.

This is rather bad because “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists have no true theory but only different opinions. What has been fateful already in the Great Depression is that economists lack the true employment theory since 200+ years. So unemployment is in the last instance the result of economists’ scientific incompetence.

To make a comprehensive analysis short#1 the basic version of the objective structural employment equation is shown on Wikimedia.

From this equation follows the correct multiplier. Keynes’s arguments about the role of aggregate demand have been commonsensically right but formally defective. More precisely, the Keynesian standard multiplier is provable false since 80 years.

Egmont Kakarot-Handtke

#1 See ‘The very serious blunders of very serious people

November 29, 2016

Economics and corruption

Comment on Paul Krugman on ‘Why Corruption Matters’

Blog-Reference

A country’s order is defined by the interplay of its institutions. Lucky the country that has a well-designed architecture of public/private institutions which individually function as intended and codified in their mission statement.

One of the fundamental principles of institution building is strict separation, for instance: separation of state and church, party and state, executive and legislative, state and economy, politics and science, etcetera.

When Krugman criticizes the lack of separation between Mr. Trump’s presidency and his private business he is in a rather awkward position. Krugman has been and still is a major participant in the deconstruction of the firewall between politics and science, or more specifically, between politics and economics.#1, #2

What the general public does not realize is that there is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never really got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing).

Economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory and axiomatically false. Economics is NOT a science and because of this the claim as expressed in the title ‘Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel’ is false.

The Bank of Sweden is, of course, entitled to award prizes but is in NO position to upgrade a cargo cult science to a science. Actually, the Bank is misleading the general public about the dismal state of economics. Whether unintentionally or intentionally is a matter of indifference. What counts is the effect on the general public.

Political economics has produced nothing of scientific value in the last 200+ years. This carries over to politics: “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. Because of this, economic policy guidance never had sound scientific foundations. And it does not matter at all whether this guidance has been more rightist or more leftist, more conservative or liberal, more Rep or Dem. ALL political economists are fake scientists.

Let’s face it, Krugman has violated and still violates the separation of sience and politics, which is vital for the integrity of science, that is, he practices illegitimately in economics what he legitimately criticizes in politics.#3

Egmont Kakarot-Handtke

#1 ‘Scientific suicide in the revolving door
#2 ‘Krugman is not an economist
#3 ‘Economists: the Trumps of science

Related 'FakeNews, FakeScience: economics in the information age' and 'Economics: a science without scientists' and 'Turning the bananatization of economics around' and 'It's about institution-building, stupid'

November 28, 2016

How to end the Punch and Judy show about profit

Comment on Fred Moseley and Peter Dorman on ‘It’s Red Friday and Time to Discuss the Role of Exploitation in Profit’

Blog-Reference

The profit theory is false since Adam Smith.#1 Economists have NO idea of the pivotal magnitude of their subject matter. This includes the four main sects Walrasianism, Keynesianism, Marxianism, Austrianism and, of course, Fred Moseley and Peter Dorman.

There are three things that are intertwined but have to be analytically kept apart: (i) Theory of Value, (ii) Theory of Profit for the economy as a WHOLE, (iii) DISTRIBUTION of overall profit between sub-sectors (production, banking, land use, etc.) and individual firms.

The Law of Value says that relative prices in the pure consumption economy are inverse to the productivities.#2 This Law replaces the Labour Theory of Value.

The Profit Law for the pure consumption economy says that OVERALL profit depends on the expenditure ratio and the distributed profit ratio.#3

It holds in particular:
• Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit maximizing behavior. These subjective factors are irrelevant, profit for the economy as a whole is OBJECTIVELY determined.#4
• In order that profit comes into existence for the first time in the pure consumption economy the household sector must run a deficit at least in one period.
• Profit is, in the simplest case, determined by the increase and decrease of household sector’s debt. There is a close relation between profit/loss and the expansion/contraction of credit for the economy as a whole.
• Wage income is the factor remuneration of labor input. Profit is NOT a factor income. Since capital is nonexistent in the pure consumption economy profit is not functionally attributable to capital.
• There is no relation at all between profit, capital, marginal or average productivity. Proudhon’s increasing returns theory of profit is plain rubbish.#5
• Profit has NO real counterpart in the form of a piece of the output cake. Profit has a monetary counterpart.
• The existence and magnitude of overall profit does not depend on the ownership of the firms that comprise the business sector. The Profit Law is the SAME in capitalism and communism.
• The value of output is, in the general case, DIFFERENT from the sum of factor incomes. This is the defining property of the monetary economy.
• Profit is a factor-independent residual and qualitatively different from wage income. Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.#6
• There is NO antagonism between total wages and total profits, and the distribution of consumption good output has nothing at all to do with profit.
• Innovation and efficiency are IRRELEVANT for the profit of the business sector as a WHOLE. It is a FALLACY OF COMPOSITION to trivially generalize what can be observed in an individual firm.

The classical/neoclassical and Keynesian/Post-Keynesian theories of value/profit are provable false or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”#7 Time for Fred Moseley and Peter Dorman to end this HiFred-HiPeter Punch and Judy show.

Egmont Kakarot-Handtke

#1 ‘The Profit Theory is False Since Adam Smith
#2 ‘The Pure Logic of Value, Profit, Interest
#3 ‘Essentials of Constructive Heterodoxy: Profit
#4 See the Profit Law for the pure consumption economy on Wikimedia
#5 See ‘Increasing Returns and Stability
#6 See also ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#7 See overview ‘One way to get it right, many ways to get it wrong

Immediately preceding 'The thing with profit and exploitation'