April 25, 2018

Macroeconomics: self-delusion and empty promises

Comment on Simon Wren-Lewis on ‘Did macroeconomics give up on explaining recent economic history?’

Blog-Reference

Simon Wren-Lewis summarizes: “… John Williams … calls here for the next generation of DSGE models to focus on three areas. First they need to have a greater focus on modelling the labour market and the degree of slack, which I think amounts to the same thing as how the NAIRU changes over time. Second, he talks about a greater focus on medium- or long- run developments to both the ‘supply’ and ‘demand’ sides of the economy. The third of course involves incorporating the financial sector. Perhaps one day DSGE models will do all this, although I suspect the macroeconomy is so complex that there will always be important gaps in what can be microfounded. But if it does happen, it will not come anytime soon.”

It will NEVER come, for the simple reason that the microfoundations approach is methodologically dead. The problem is that the present generation of economists is in the state of manifest self-delusion. The point to grasp is that economics has to be macrofounded.*

For more details see
Because the axiomatic foundations of economics are false the whole of economics is false. Economic policy guidance has no sound scientific foundations since Adam Smith/Karl Marx.

Egmont Kakarot-Handtke


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April 24, 2018

Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?

Comment on Brian Romanchuk on ‘Forecastability And Economic Modelling

Blog-Reference and Blog-Reference

“The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. Work on this line is laying the foundations of the economics of the future . . .” (Schumpeter, 1946)

The future is now and economists still do NOT have the paradigmatic simple core model but a heap of incommensurable and contradicting constructions. Pluralism may have its merits elsewhere but is the worst thing that can happen in science. As the ancient Greeks already observed: “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.” (Popper)

Fact is that, in economics, ALL models are axiomatically false. It holds: “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, 300 BC) Fact is that the premises of current models are neither certain, true, nor primary.

Brian Romanchuk’s SIM model is a case in point. He enumerates his key premises as follows.
  • The model is a straightforward three sector model, with a household sector, business sector, and government. 
  • The household consumption function is defined in terms of a pair of propensity to consume parameters (out of income, out of wealth). …
  • The business sector is constrained to break even, …
  • Government policy is specified in terms of government consumption and a fixed tax rate.
Brian Romanchuk starts with macrofoundations, which is correct. But then he assumes a consumption function, which is a NONENTITY, and break even for the business sector, which kills the model already at this early stage because a zero profit economy is the most idiotic NONENTITY of them all.

Let us contrast this with the standard microfoundations approach. The whole analytical superstructure of Orthodoxy is based upon this set of hardcore propositions a.k.a. axioms:
  • HC1 There exist economic agents.
  • HC2 Agents have preferences over outcomes.
  • HC3 Agents independently optimize subject to constraints.
  • HC4 Choices are made in interrelated markets.
  • HC5 Agents have full relevant knowledge.
  • HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub)
HC3 introduces marginalism which is the all-pervasive principle of Orthodoxy. HC3, though, and HC5 and HC6 are plain NONENTITIES.#1

In order to be applicable HC3, requires a lot of auxiliary assumptions, most prominently a well-behaved/differentiable production function.#2 Taken together, all axioms and auxiliary assumptions then crystallize to supply-function/demand-function/equilibrium or what Leijonhufvud famously called the Totem of Micro.#3

The methodological fact of the matter is that ALL models that take just one NONENTITY into the premises are a priori false.#4

So, because these premises are NOT “certain, true, and primary” they cannot be used for model building: expected utility, rationality/bounded rationality/animal spirits, constrained optimization, well-behaved production functions, supply/demand functions, simultaneous adaptation, equilibrium, first/second derivatives, total income=value of output, I=S, real-number quantities/prices, ergodicity. Every theory/model that contains just one NONENTITY goes straight into the wastebasket.

The standard microfoundations approach with all its variants and derivatives up to DSGE is methodologically false. The same holds for Keynes’ macrofoundations and all After-Keynesian variants.

To put NONENTITIES into the premises is the defining characteristic of fairy tales, science fiction, theology, Hollywood movies, politics, proto-science, and the senseless model bricolage of scientifically incompetent economists.#5 *

Egmont Kakarot-Handtke


#1 The solemn burial of marginalism
#2 Putting the production function back on its feet
#3 Equilibrium and the violation of a fundamental principle of science
#4 The future of economics: why you will probably not be admitted to it, and why this is a good thing
#5 How to restart economics

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April 23, 2018

Note on Marx Today

Blog-Reference

There is political economics 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) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

The worst blunder is profit theory. Marx, too, never came to grips with profit. For an overview see
Because the pivotal economic concept profit is false the whole of economics is false. Economic policy guidance has no sound scientific foundations since Adam Smith/Karl Marx.

Egmont Kakarot-Handtke


#Economics #FailedScience #FakeScience #CargoCultScience #ScientificIncompetence #Economists  #ProfitTheory #DeleteEconomics #ParadigmShift

April 21, 2018

Overreach: Economists have their fingers in every pie except real economics

Comment on Barkley Rosser on ‘Can Nudging Become A New Road To Serfdom?’

Blog-Reference

Until this day, economists have no clue of what their subject matter is. While the sciences have specialized, economists follow the Renaissance ideal of the homo universalis.#1 Accordingly, they dabble in Psychology, Sociology, Political Sciences, Geopolitics, Law, History, Anthropology, Social Philosophy, Philosophy, Theology, Pedagogic, Biology/ Evolution, Climatology, and what not.

People become progressively aware that in all these disciplines economists have not contributed anything of scientific value: “While he [Todd Zywicki] overdid it a bit he argued with some good reason that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed. They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated. He raised a point of more general interest in charging that there has been a problem of ‘citation cascades,’ where a string of decisions have been based on people citing people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis.”

This is not correct. Economics has a clear basis and it is given with the set of neo-Walrasian axioms: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub)

Economists simply apply this set of behavioral assumptions or slight variants thereof or the subset of optimization-and-equilibrium to any question they come across. The tragicomedy is that this methodology has crushingly failed in their own field. Economists can to this day not tell how the price- and profit-mechanism works or what profit is.#2, #3

The methodological blunder of economists and the ultimate reason why economics is one of the worst scientific failures of all times consists in defining economics as a social science.#4, #5

So, the definition of the subject matter has to be changed:*
  • Old (behavioral): Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
  • New (systemic): Economics is the science which studies how the monetary economy works.
Orthodoxy and traditional Heterodoxy is lost for science. Economists cannot be taken seriously ― not when they speak about the economy and still less so when they blather about nudging as the new road to serfdom.

Egmont Kakarot-Handtke


#1 Wikipedia, Polymath
#2 Economists’ three-layered scientific incompetence
#3 Mental messies and loose losers
#4 Economics is NOT a social science
#5 For details of the big picture see cross-references Not a Science of Behavior

Related 'Dear philosophers, economics is a system science'.

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REPLY to Barkley Rosser on Apr 22

Alone the titles of your posts ‘Can Nudging Become A New Road To Serfdom?’ or ‘Anniversary of Yeshua bin Yusuf dying on a cross’ tell everybody that you never understood what science is all about.

The dabbling of economists in Psychology, Sociology, Political Sciences, Geopolitics, Law, History, Anthropology, Social Philosophy, Philosophy, Theology, Pedagogic, Biology/ Evolution, Climatology, etcetera has never been anything else than dilettantish overreach, nuisance, and nerviness. All the more so, because economists messed up their own field in all dimensions and never rose above the proto-scientific level.

The lethal blunder of the microfoundations approach does NOT lie in any specific behavioral assumption like constrained optimization or bounded rationality but in the methodological incompetence of economists to realize that NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works.#1, #2

ALL human-centered/behavioral approaches invariably crash against the methodological wall of the Fallacy of Composition. NO way leads from the assumption of profit maximization to the macroeconomic Profit Law.#3 And this explains why the microfoundations approach has been doomed to failure from the very beginning in the 1870s.

Behavioral economics or Vernon Smith’s market experiments is partial analysis and the results of partial analysis cannot, as a matter of methodological principle, be generalized. From Vernon Smith’s market experiments cannot be concluded that the market economy is a self-adjusting system.

The fact of the matter is that correct macrofoundational analysis proves that the market economy is unstable and that it will eventually break down.#4 You can do behavioral experiments until you are blue in the face but this will not yield any results as to how the market system works.

Microeconomics has always been the playground of microbrains.#5*



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REPLY to Barkley Rosser on Apr 23

You are off track. The point at issue is NOT the market experiments of Vernon Smith and others but that the subject matter of economics is ill-defined.

Imagine a physicist is asked to figure out how the universe works and after some time he comes back and says: The universe is much too large, not of direct relevance to our daily lives, and ultimately incomprehensible, so I have analyzed the molehills in my front garden — with surprising results.

If you want to understand the universe it is of no use to thoroughly examine molehills and if you want to understand the economy it is of no use to second-guess Human Nature/ motives/behavior/actions.

Macro is about the economic universe and micro is about mole-psychology-sociology. Behavioral economists are unable to look beyond their molehill horizon. But the methodological fact of the matter is that NO amount of molehill research ever leads to the understanding of how the universe works and NO way leads from the understanding of human behavior to the understanding of how the market economy works.#1, #2

This explains why the microfoundations approach has failed. However, from textbook to peer review to the fake Nobel, economists still cling to their false methodology: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

After 140+ years of methodological blunder, it is time for the paradigm shift from bottom-up to top-down.#3 Hitherto accepted economists are no longer accepted.



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REPLY to Barkley Rosser on Apr 25

Akerlof’s AEA address is a fine summary of the multiple idiocies of microfounded macroeconomics. Just take the microfounded = behavioral Phillips curve and the macrofounded = structural Phillips curve.#1

The microfoundations = behavioral approach is a scientific lemon since Jevons/Walras/ Menger but you have not realized it to this day. Methodologically it holds: If it isn’t macro-axiomatized, it isn’t economics.

Behavioral economics has never been more than rather trivial folk psychology/sociology, i.e. an overreach of incompetent economists who do not understand since 200+ years the very basics of their own subject matter.#2, #3


April 20, 2018

Stop beating mainstream economics ― it is long dead

Comment on Lars Syll on ‘The tractability hoax in modern economics’

Blog-Reference and Blog-Reference

Lars Syll describes how economists proceed: “The theories and models that mainstream economists construct describe imaginary worlds using a combination of formal sign systems such as mathematics and ordinary language. The descriptions made are extremely thin and to a large degree disconnected to the specific contexts of the targeted system than one (usually) wants to (partially) represent. This is not by chance. These closed formalistic-mathematical theories and models are constructed for the purpose of being able to deliver purportedly rigorous deductions that may somehow by be exportable to the target system.” And he concludes: “What is wrong with mainstream economics is not that it employs models per se, but that it employs poor models. They are poor because they do not bridge to the real world target system in which we live.”

All this is true. The curious thing is, it is true since 140+ years. So, the real question is how can this be?

Standard economics is well-articulated and it is built upon this verbalized neo-Walrasian axiom set:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub)

It is all in the open, everyone with one milligram of scientific competence can see that these premises are absurd. HC3, HC5, and HC6 are plain NONENTITIES. Every theory/model that contains just one NONENTITY is a priori false and scientifically worthless. Methodology tells us that when the axioms are false the whole analytical superstructure is false.

So, what has to be done is to simply throw the neo-Walrasian axiom set out of the window and start anew. This act is called a Paradigm Shift. But nothing of the sort happens. The journalistic loudspeaker of the profession proudly declares: “… 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).

There is no use to apply any of the propositions of the set HC1/HC6 and there is no use to accuse standard economics of unrealism and mathiness. However, this is what happens day in day out. Economists play this silly game since 140+ years.

Orthodoxy simply recycles long refuted stuff as already Morgenstern criticized: “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.”

Heterodoxy, on the other side, tirelessly repeats its trivial criticism. And that’s it. No conclusion is drawn, no consequences follow, no methodologist steps in, nobody resigns, nobody is fired, all ends in a draw and the status quo goes on.#1

Heterodoxy, clearly, never tried in earnest to overthrow Orthodoxy: “… 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) Heterodoxy’s ambition never went beyond the pluralism of false theories and a bigger share of the academic curriculum. That is human-all-too-human, but it is not science.#2*

What is economic debate these days? A wrestling show of useful political idiots with zero scientific content and no result that ever disturbs the pluralism of provably false proto-scientific theories/models.

Egmont Kakarot-Handtke


#1 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#2 New Economic Thinking: The 10 crucial points

Related 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?'. For details of the big picture see cross-references Incompetence.

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April 19, 2018

Equilirium

Comment on David Glasner’s ‘On Equilibrium in Economic Theory’

Blog-Reference and Blog-Reference on Apr 20

David Glasner explains the evolution of the equilibrium concept: “Equilibrium is an essential concept in economics. While equilibrium is an essential concept in other sciences as well, and was probably imported into economics from physics, its meaning in economics cannot be straightforwardly transferred from physics into economics. The dissonance between the physical meaning of equilibrium and its economic interpretation required a lengthy process of explication and clarification, before the concept and its essential, though limited, role in economic theory could be coherently explained.”

What David Glasner overlooks is that equilibrium is one of the worst methodological blunders of the failed science economics. Hence, the history of equilibrium economics from demand-supply-equilibrium to DSGE is in essence not different from the history of the Flat Earth Theory. It can only be told as a cautionary example of utter scientific incompetence.

The lethal methodological blunder of standard economics consists of putting equilibrium into the premises. This is the verbalized neo-Walrasian axiom set:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985)

Obviously, since we do not know at the beginning of the analysis whether something like an equilibrium exists in the monetary economy, it is illegitimate to put it into the premises. This idiocy/fraud is known since antiquity as petitio principii.#1, #2, #3, #4

At the beginning of economic analysis stands Keynes’ question: “... is the existing economic system in any significant sense self-adjusting.” Keynes started with the right question but he could not answer it in a scientifically correct manner.#5, #6, #7

Because equilibrium (and by implication disequilibrium) does not exist, all theories/models that contain the concept are a priori false and scientifically worthless. The history of equilibrium economics cannot be told as a story of progressive insight and growth of scientific knowledge but as a delirious march into the woods towards the inescapable end: “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.” (Hume)#8, #9

David Glasner, though, lacks even this little judgment.

Egmont Kakarot-Handtke


#1 Equilibrium and the violation of a fundamental principle of science
#2 There is NO such thing as supply-demand-equilibrium
#3 Forget equilibrium
#4 Equilibrium is stone dead — and now?
#5 Could we, please, all focus on the key question of economics?
#6 What Keynes really meant but could not really prove
#7 Proof of the inherent instability of the market economy
#8 Economists: Standing on the Shoulders of Gnomes
#9 New insight from Meta-Learning: delete economics

Knowledge is attainable ― even in economics

Comment on Lars Syll on ‘Sometimes we do not know because we cannot know’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference on Apr 21

Lars Syll maintains: “To Keynes, the source of uncertainty was in the nature of the real ― nonergodic ― world. It had to do, not only ― or primarily ― with the epistemological fact of us not knowing the things that today are unknown, but rather with the much deeper and far-reaching ontological fact that there often is no firm basis on which we can form quantifiable probabilities and expectations at all. Sometimes we do not know because we cannot know.”

Yes, this is a well-known fact of life since the Stone-Age. There are three ways to deal with the annoying human condition: (i) to repeat the mantra, I know that I know nothing, ad nauseam, (ii) to senselessly speculate about the unknowable which is the business of mysticism/religion/philosophy/journalism, (iii) to put the gray matter between the ears to work which is the business of science: “The object of reasoning is to find out, from the consideration of what we already know, something else which we do not know.” (Peirce)

So, the growth of knowledge in economics has to start with what we know for sure:
  • the profit theory, false since 200+ years,#1
  • Walrasian microfoundations (in particular equilibrium), are false since 140+ years,#2
  • Keynesian macrofoundations (in particular I=S/IS-LM), are false since 80+ years,
  • Walrasianism, Keynesianism, Marxianism, Austrianism and all variations/ derivatives thereof are axiomatically false and materially/formally inconsistent,
  • economists are scientifically incompetent,
  • economics is a cargo cult science,
  • the Bank of Sweden Prize in Economic Sciences is a fraud,
  • economic policy guidance has no sound scientific foundations since 200+ years,
  • economists are a hazard to their fellow citizens,
  • economics needs a Paradigm Shift,#3
  • Heterodoxy is incapable of performing the Paradigm Shift because heterodox and pluralist economists are just as stupid and corrupt as orthodox economists.#4
So, yes, economists know nothing. But it is false to maintain, as Lars Syll does, that this is an ontological fact.#5, #6 No, it is sheer scientific incompetence. To recall, for science holds: “We must not believe those, who today, with philosophical bearing and deliberative tone, prophesy the fall of culture and accept the ignorabimus. For us, there is no ignorabimus, and in my opinion none whatever in natural science. In opposition to the foolish ignorabimus, our slogan shall be: We must know — we will know!” (Hilbert)*

Egmont Kakarot-Handtke


# 1 The profit theory is false since Adam Smith
# 2 New insight from Meta-Learning: delete economics
# 3 How to get rid of an obsolete theory
#4 Economics: 200+ years of scientific incompetence and fraud
#5 Lars Syll, fake scientist
#6 Cryptoeconomics ― the best of Lars Syll’s spam folder

Related 'Overreach: Economists have their fingers in every pie except real economics' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?'

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