June 28, 2017

Profit and stupidity

Comment on Barkley Rosser on ‘Comments on Profit and Capital’

Blog-Reference

The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008). This translates into: after 200+ years economists still do not know what profit is.

Barkley Rosser quotes Marx, Piketty, Ricardo, the Austrians, and the textbooks in order to show how economists have dealt with profit and closely related concepts. Yes, all economists/schools had their own definition of profit which only proves, in Popper’s words: “This shows that they are not all true. For if they conflict, then at best only one of them can be true.” In fact, ALL are provable false.#1

In his lengthy post Barkley Rosser throws in a host of phenomena that are superficially related to profit (capital, machinery, depreciation, waiting, roundaboutness, risk, profit distribution, etcetera) and thus thoroughly messes the whole issue up. This is the tried and tested swampification strategy of confused confusers. In order to determine profit all these related phenomena have to be put aside in the first round for reintroduction at a later stage. The lethal analytical mistake is to automatically couple profit and capital. Both have to be properly kept apart. Barkley Rosser’s methodological incompetence reveals itself already in the thread’s title.

For the determination of monetary profit of the economy as a whole one has to start with the most elementary case of a pure 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. Note that profit has NOTHING at all to do with capital. To mindlessly couple profit and capital has been the crucial analytical blunder of the founding fathers from which economics has not recovered until this day. These 200+ years of analytical sloppiness and confusion are a telling metric for the scientific incompetence of economists.#3

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, capital, power, waiting, risk, greed or the smartness of capitalists. Overall profit/loss is determined in the most elementary case by the change of the household sector’s debt.#4 This is a testable proposition.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith
#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. For a start it holds X=O.
#3 See also ‘How the intelligent non-economist can refute every economist hands down
#4 For more details see cross-references Profit

Marx, the moron

Comment on Chris Dillow on ‘Why libertarians should read Marx’

Blog-Reference and Blog-Reference and 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 consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong.

Marx, clearly, was NOT a scientist but a political agenda pusher. However, after the scientific triumphs of Copernicus, Kepler, Galileo, Newton, Laplace, Leibniz etcetera agenda pushing had to be dressed as science. This gave rise to what Feynman famously called cargo cult sciences.

What Marx did was sociology, history, storytelling, prophesy and agenda pushing. He had NO idea how the monetary economy works because he never figured out what profit is.* That is rather bad for an economist but what is worse is that After-Marxians did not spot and rectify Marx’s blunders in the past 130+ years.

What we actually have is the pluralism of provable false theories. Walrasianism, Keynesianism, Marxianism, Austrianism look antagonistic on the surface but have one essential thing in common: they are all fake science.

Egmont Kakarot-Handtke

* See ‘Profit for Marxists


Related 'Economics: 200+ years of scientific incompetence and fraud' and 'The end of political economics'

The minimum wage debate: a showpiece of economists’s hereditary idiocy

Comment on Sandwichman on ‘Seattle Minimum Wage’

Blog-Reference and Blog-Reference

“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)

Fact is that economists do NOT have the true theory. Fact is, in methodological terms, that economics is axiomatically false. The lethal blunder comes under the label of microfoundations or as Krugman 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.”

The methodological blunder of the minimum wage debate consists in partial analysis and microfoundations. This type of analysis NEVER leads to results that can be generalized, but always to results that change from place to place and from time to time. So, this type of analysis (i) runs directly into the Fallacy of Composition, and (ii), remains forever inconclusive.

Interim result: The traditional microfoundations approach is as false as one can get and has to be fully replaced by the macrofoundations approach.

The correct macro employment equation#1 is reproduced on Wikimedia.#2 From this objective-structural-systemic relationship follows inter alia:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete structural-systemic employment equation is a bit longer and contains in addition the public sector and the foreign trade sector.

Item (i) and (ii) cover the familiar arguments about how effective demand affects employment. Item (iii) embodies the macroeconomic price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.

From this follows:
(1) The average wage rate has to be prevented from falling because this leads to rising unemployment and deflation. One possibility is to fix a minimum wage rate which increases over time. Note that this is a SYSTEMIC necessity and has NOTHING to do with social policy.
(2) The minimum wage rate has to be implemented nationwide (strictly speaking world wide). To implement it locally or for certain branches is absolutely counterproductive.
(3) The implementation has to be done intelligently. It is, for example, stupid to kill the marginal firms with the introduction of a nationwide minim wage.
(4) Given their track record of idiocy, economists have to be kept out of further discussion and implementation.

Minimum wage policy has to be carried out under the macroeconomic condition w greater than p+r+pr, that is roughly speaking, employment increases if the increase of the average wage rate w is greater than the increase of average price p and productivity r.

To make local and partial minimum wage increases will in all eternity lead to inconclusive results and only keep a bunch of incompetent scientists busy with senseless debate, inconclusive empirical studies, and brain-dead blog posts.

Egmont Kakarot-Handtke

#1 For details see ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 Wikimedia


Related 'Economics and the Fallacy of Insufficient Abstraction' and 'The role of labor and business in a well-organized society' and 'Rethinking the Phillips curve' and 'Attention: there are THREE types of inflation' and 'Textbooks and the mental cloning of dumb economists'. For more details of the bigger picture see cross-references Employment

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REPLY to Barkley Rosser on Jun 28

Note that the EconoSpeak admin=your sidekick Sandwichman has deleted since Jun 24 the following posts:
The minimum wage debate: a showpiece of economists’s hereditary idiocy
Note on Marshall’s Magic Wand
Economics and the Fallacy of Insufficient Abstraction
The role of labor and business in a well-organized society

In these posts and the references you find the detailed refutation of your unqualified blather.*

Egmont Kakarot-Handtke

* See also cross-references Employment and cross-references Incompetence

***
REPLY to Barkley Rosser on Jun 29

I agree with you about the brilliance of Joan Robinson which is encapsulated in her assessment of economics: “Scrap the lot and start again.”

The others, who are brilliant in your eyes, will not even make it into a footnote of the history of science. With regard to Adam Smith I concur with Schumpeter: “… 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.” If this is your definition of brilliance you are probably one of the dullest readers.

For an assessment of the rest of your list see:
Marx, the moron
Walras is long gone
How Keynes got macro wrong and Allais got it right
Hayek and other informationally retarded proto-economists
The father of modern economics and his imbecile kids
How Arrow pushed economics over the cliff

Economics is a failed science and those you call brilliant messed it up.

June 27, 2017

Empiricism, or looking through the microscope at the universe

Comment on Mark Thoma on ‘An Empirical Turn in Economics Research’

Blog-Reference

This is what empiricists overlook or ignore: “Indeed, there is no such thing as an uninterpreted observation, an observation which is not theory-impregnated.” (Popper)

Now, the fact of the matter is that theoretical economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories.

A theory is the best possible mental representation of reality. If the theory is false empirical tests either lead to a refutation or to inconclusive results. And this is exactly what happened: “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands)

Economics is a failed science and the lethal methodological blunder happened at the level of theory. Accordingly, what is needed is nothing less than a paradigm shift: “Yet most economists neither seek alternative theories nor believe that they can be found.” (Hausman)

In order to avoid the reproach of being lost in vacuous theorizing economists escape to empiricism, in the extreme case to “measurement without theory”. But without the true theory at the back of their minds empiricists cannot rise much about the trivial, commonsensical, and the spatio-temporal particular that defies generalization. Thus, economics degenerates to folk psychology, folk sociology, folk history, and number crunching. The press and the general public likes this stuff very much because it is “realistic”. But storytelling decorated with suggestive facts/data is not science, it is what Feynman called cargo cult science.

All economic schools have one thing in common: they do not understand the scientific method. Their approach can roughly be characterized as microfoundations and bottom up: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

This, in a nutshell, is the lethal defect of economics because methodologically it holds that (i) there is NO such thing as an invariant of human behavior, and (ii), NO way leads from the explanation of Human Nature/motive/behavior/action to the explanation of how the economic system works. In other words, microfoundations and bottom-up never leads to an understanding of how ‘the economy’ works.

Keynes realized that the classical microfoundations approach had led into a cul-de-sac and therefore switched to macrofoundations. This was, in principle, the right first step towards a paradigm shift, except for the fact that Keynes messed up his macrofoundations.#1

The lesson from the history of economic thought is that theoretical economics has to proceed top-down, i.e. from macrofoundations which define ‘the economy’, down through intermediate levels (sectors, branches, firms, households) to the individual. What empiricists do not understand is that NO amount of microeconomic research ever leads to the understanding of ‘the economy’.

The microfoundations approach had been doomed to failure already 140+ years ago. The current empirical turn in economic research does not help much as long as the defective theoretical foundations are still in place. The correct sequence is: before the empirical turn comes the theoretical turn, that is, the paradigm shift.#2

What the representative economist still does not understand is that economics is NOT a social science but a system science and that if it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

#1 See ‘The unfinished Keynes
#2 For details see ‘First Lecture in New Economic Thinking

June 26, 2017

The end of political economics

Comment on Ravi Kanbur on ‘W. Arthur Lewis and the tradeoffs of economics and economists’

Blog-Reference and Blog-Reference on Jun 28 and Blog-Reference

There is no such thing as economics. There are TWO economixes: 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 consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories.

Theoretical economics is scientifically unacceptable. Because of this, economics has nothing to offer in the way of a scientifically well-founded advice: “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)

Fact is that neither Orthodoxy nor Heterodoxy has the true theory and that, by consequence, economic policy guidance of BOTH sides has NO sound scientific foundation. Economists should no longer pretend to do science but openly push their respective political agendas.

Even if economists had the true theory they would have NO political mandate. There is NO such thing as a trade-off between theoretical and political economics. 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.”

Since the founding fathers economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/Karl Marx. Political economics has produced NOTHING of scientific value in the last 200+ years. It is high time that economics frees itself from the all-pervasive and all-corrupting grip of politics.

What Burke termed ‘one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion’ is a POLITICAL question entirely OUTSIDE the sphere of economics. Economists have to step down from the political soap box which the founding fathers have illegitimately usurped 200+ year ago.

Egmont Kakarot-Handtke


Related 'Economics: 200+ years of scientific incompetence and fraud'. For details of the bigger picture see cross-references Political economics and cross-references Incompetence

Note on Marshall's Magic Wand

Comment on Sandwichman on ‘Marshall's Magic Confidence-Wand’

Blog-Reference and Blog-Reference

Marshall explains commercial depression: “The chief cause of the evil is a want of confidence.” and “In short there is but little occupation in any of the trades which make Fixed capital.”

No taxi driver could explain it better. This kind of “explanation” is paradigmatic for the level of economic science and for these brain-dead trivialities Marshall is still ackowledged as great economist. One trembles to contemplate what the economics of his peers had looked like.

Update for students: Marshall’s economics has already been dead in the cradle in 1890. That he and his Principles are not buried and forgotten is a sure indication of the utter scientific incompetence of later generations of scholars. Marshall’s supply-demand-equilibrium is one of the most ridiculous constructs in the history of the sciences but still the centerpiece of every economics textbook.

For details see:
Marshall: a monument of scientific incompetence
Marshall and the Cambridge school of plain economic gibberish
Essentials of Constructive Heterodoxy: The Market

Egmont Kakarot-Handtke

June 25, 2017

Economics and the Fallacy of Insufficient Abstraction

Comment on Sandwichman on ‘”If There Is Any Such Thing”: Why read Hoxie on theory?’

Blog-Reference

What is the core problem of economics? Bagehot made it clear back in 1885: “It [Political Economy] is an abstract science which labours under a special hardship. Those who are conversant with its abstractions are usually without a true contact with its facts; those who are in contact with its facts have usually little sympathy with and little cognisance of its abstractions. Literary men who write about it are constantly using what a great teacher calls ‘unreal words,’ ― that is, they are using expressions with which they have no complete vivid picture to correspond. They are like physiologists who have never dissected; like astronomers who have never seen the stars; and, is consequence, just when they seem to be reasoning at their best, their knowledge of the facts falls short. Their primitive picture fails them, and their deduction altogether misses the mark ― sometimes, indeed, goes astray so far, that those who live and move among the facts boldly say that they cannot comprehend ‘how any one can talk such nonsense.’ Yet, on the other hand, these people who live and move among the facts often, or mostly, cannot of themselves put together any precise reasonings about them.”

This, though, was not news because J. S. Mill reported already in 1874 about the two classes of inquirers.

“It has been again and again demonstrated, that those who are accused of despising facts and disregarding experience build and profess to build wholly upon facts and experience; while those who disavow theory cannot make one step without theorizing. But, although both classes of inquirers do nothing but theorize, and both of them consult no other guide than experience, there is this difference between them, and a most important difference it is: that those who are called practical men require specific experience, and argue wholly upwards from particular facts to a general conclusion; while those who are called theorists aim at embracing a wider field of experience, and, having argued upwards from particular facts to a general principle including a much wider range than that of the question under discussion, then argue downwards from that general principle to a variety of specific conclusions.”

Bottom line: there are two types of economists, the upwarders and downwarders. This distinction overlaps with the distinction between induction and deduction which in turn overlaps with the distinction between practitioners and theoreticians.

The core problem of economics is that neither upwarders nor downwarders were particularly successful. After 200+ years economics is still at the proto-scientific level.

Methodologically, unionists are upwarders: “Unionists are not theorists; unionism is an eminently practical thing.” (Hoxie). “Theory and trade unionism are almost contradictory terms.” (Arnos) As a result, unionists have no true theory of how the economy works and how the aggregate labor and product markets interact. In other words, union policy never had sound scientific foundations but always remained glued to the phenomenological surface. Unionists did not realize what Marx already clearly saw: “That in their appearances things are often presented in an inverted way is something fairly familiar in every science, apart from political economy.”

Because they have always been glued to the immediately practical of the here and now unionists have never figured out what profit is.#1 As a collateral damage they got stuck at the naive concept of exploitation and never arrived at the concept of crossover exploitation.#2

Fact is that the myopic upwarders, i.e. ‘these people who live and move among the facts’, i.e. labor and business, never arrived at a consistent profit and employment theory. But, and this is one of the worst scientific scandals in human history, neither did Walrasians, Keynesians, Marxians, and Austrians.#3

Both, the upwarders and downwarders fell victim to the Fallacy of Insufficient Abstraction and failed to explain how the actual economy and the labor market works. Time to throw Hoxi’s and Marshall’s and Walras’ and Keynes’ employment theories on the big heap of proto-scientific garbage.#4

Egmont Kakarot-Handtke

#1 See ‘Profit for Marxists
#2 See ‘The thing with profit and exploitation
#3 See ‘Unemployment ― the fatal consequence of economists’ scientific incompetence’ and ‘Have data, lack theory
#4 For the correct approach see ‘The role of labor and business in a well-organized society


Related 'Rethinking the Phillips curve' and 'Attention: there are THREE types of inflation' and 'Economic bungee jumping without cord'. For more details of the bigger picture see cross-references Employment

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ADDENDUM to Sandwichman on Jun 26

It is a characteristic trait of economics that problems are never solved but endlessly recycled. This explains why economics made no progress since Adam Smith: “... 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).

Economics is a bit like Nietzsche’s Éternel Retour de la pensée la plus lourde. Among the best known examples are capital theory, I=S, lump of labor theory, Say’s Law, Profit Theory. These are monuments of the scientific incompetence of economists.

Your recycling of these issues is a waste of time. Obviously it escaped your attention that the correct profit and employment theory is available on EconoSpeak and elsewhere. For analytical entry points see:
Economics and the Fallacy of Insufficient Abstraction
The role of labor and business in a well-organized society
Essentials of Constructive Heterodoxy: Say's Law
The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment

June 24, 2017

The role of labor and business in a well-organized society

Comment on Sandwichman on ‘Hoxie on “Fixed Group Demand Theory” (the “lump of labor”)’

Blog-Reference

“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)

Fact is that economists do NOT have the true theory. This holds in particular for employment theory, and the lump of labor theory is a case in point. The lethal methodological blunder of employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole. What the representative micro-brained economist never understood is that what is true for the molehill is not true for the universe.

Methodological conclusion: the traditional microfoundations approach is as false as one can get and has to be fully replaced by the macrofoundations approach.

The correct macro employment equation#1 is reproduced on Wikimedia.#2 From this objective-structural-systemic relationship follows inter alia:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete structural-systemic employment equation is a bit longer and contains in addition the public sector and the foreign trade sector.

Item (i) and (ii) cover the familiar arguments about how effective demand affects employment. Item (iii) embodies the macroeconomic price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.

From this follows the proper macroeconomic role of the institution union. To be clear, with the institution union is not meant the different historical variants as they have developed in different countries but an abstract entity that represents all workers/employees. At the other side of the table sits the abstract entity business which represents all firms of the business sector. These two macro-entities are now given the task to establish full employment by setting the average wage rate W and the average price P.

In the present situation (with rhoE and I given), a theoretically enlightened and politically empowered perfectly symmetric macro-institution would set the parameters as follows: price increase zero and wage increase greater than productivity increase. This increases employment for a while. Afterwards: price increase zero and wage increase equal to productivity increase. This stabilizes the economy at full employment.

With the historically given institutional setting one gets this chain of events: insufficient wage increase - employment L down/price P down - asymmetric weakening of the labor side - insufficient wage increase - employment down/price down - and so on. Correct macrofounded economic theory tells us that an economy with crappy institutions gets eventually caught in a spiral of deflation and falling employment. And that is exactly what can be observed.

Obviously, it is mentally retarded economists who ― after 200+ years still stuck with the lump of labor theory ― bear the intellectual responsibility for the economic mess.

Egmont Kakarot-Handtke

#1 For details see ‘NAIRU, wage-led growth, and Samuelson’s Dyscalculia’  and ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 Wikimedia

June 22, 2017

Have we reached the bottom of gossip economics?

Comment on Barkley Rosser on ‘Saudi Succession Shuffle’

Blog-Reference

Always when you think you have seen the worst crap of economics you are in for a surprise because Barkley Rosser posts on EconoSpeak.

To put things in perspective one has to realize that Barkley Rosser is the very incarnation of the representative economist. That is:
  • Since Econ 101 he has not understood what profit is.
  • He has never understood that Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory, axiomatically false, and materially/ formally inconsistent.
  • He has never understood that the pluralism of false theories makes economics a fake science.
  • He has never understood that economics is NOT about Human Nature/behavior/ reproduction but about the behavior of the economy.
  • He has never understood that he most of the time violates scientific standards.
  • Instead of bringing himself scientifically up to speed he clarifies Elvis’ genealogy: “Elvis Presley almost certainly had African ancestry, even if as the son of a culturally white family born in the heart of the racist Deep South in Tupelo, Mississippi, he never made any mention of this likely fact overtly to my knowledge.”
  • Instead of studying the cutting edge of economics he gossips about the celebrities of the Saudi family: “Abdulaziz, who died in 1953 after uniting Saudi Arabia and having 43 sons and over 100 wives, although never more than 4 at a time. Certain wives were more important than others and produced more important sons, with basically only three in play here regarding possible future succession to the Saudi throne. And “Muhammed bin Salman is a millennial, and this is the moment of the millennials taking charge there, even if it is a ‘sloppy’ and ‘unwise’ and highly aggressive one that is doing so.”
Somehow, Barkley Rosser has come down to a dog breeder’s variant of political economics. And, having lost all perspective, he has no objections when the admin of EconoSpeak deletes posts that straightforwardly debunk his poor economics.

Not much positive can be said about the representative economist: he is a failed scientist and to call him sloppy and unwise would be a bit flattering.

Egmont Kakarot-Handtke

* See preceding threads
Needed: The Worst of the Worst of economics blogs
Banana economics
First Lecture in New Economic Thinking

Rethinking the Phillips curve

Comment on Nick Bunker on ‘Is the Fed being misguided by the Phillips curve?’

Blog-Reference

“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)

Fact is that economists do NOT have the true theory. This holds in particular for profit and employment theory which are provable false. The Phillips curve, for example, is misspecified since Samuelson.#1 So, yes, the Fed is constantly being misguided by provable false economic theory.

The correct employment equation is reproduced on Wikimedia.#2 From this objective-structural-systemic Phillips curve follows inter alia:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

The complete structural-systemic Phillips curve is a bit longer and contains in addition the public sector and the foreign trade sector.

Item (i) and (ii) cover the familiar arguments about how effective demand affects employment. Item (iii) embodies the price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.

There is NOT much use in speculating if and when the wage rate rises if unemployment falls. There is NO law-like relationship between these variables. By consequence, wage rate and price have to be taken as parameters. The structural-systemic employment equation tells us how to exactly set the parameters in order to achieve the employment objective.

In the present situation, a theoretically enlightened and politically empowered FED (or some other competent institution) would set the parameters as follows: price increase zero and wage increase greater than productivity increase. This increases employment for a while. Afterwards: price increase zero and wage increase equal to productivity increase. This stabilizes the economy at full employment. Trying to steer price, wage rate and employment via the interest rate is a futile exercise that has NO sound theoretical foundation. To recall: economics is a failed science since 200+ years.

Egmont Kakarot-Handtke

#1 For details see ‘NAIRU, wage-led growth, and Samuelson’s Dyscalculia’ and ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 Wikimedia


Related 'Attention: there are THREE types of inflation' and 'Naive arithmetic' and 'NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather' and 'Reading the correct Phillips curve correctly' and 'Nine views are nine too much' and 'The end of storytelling' and 'NAIRU and economists’ lethal swampiness' and 'NAIRU ― letting one more nonentity go'

June 21, 2017

Attention: there are THREE types of inflation

Comment on Simon Wren-Lewis on ‘UK monetary policy: you cannot be serious?’

Blog-Reference and Blog-Reference on Jun 22

Simon Wren-Lewis clarifies: “When I recently wrote about increasing the inflation target, I knew I would get at least one comment saying wouldn’t this reduce real wages even further. As I always do, I explained that raising the inflation target should raise the rate of increase of all nominal quantities by the same amount, which is what economists mean by inflation. But it seems the same basic point has to be made to these three members of the MPC too: inflation is not just the rate of change of the consumer price index.”

What economists mean by inflation is false and this is relevant for the relationship between inflation and employment.

From the correct employment equation* follows that employment L depends (i) on aggregate demand, which is here given with the expenditure ratio rhoE and investment expenditures I, and (ii), on the price mechanism, which is formally embodied in the macro-ratio rhoF=W/PR with W = average wage rate, P = average price, and R = average productivity.

Let rhoE and I be fixed and the rate of change of productivity R for simplicity be zero, i.e. r=0, then there are THREE logical cases:
(i) The rate of change of the wage rate W is equal to the rate of change of the price P, i.e. w=p, then employment does NOT change NO MATTER how big or small the rates of change are.
(ii) The rate of change of the wage rate is greater than the rate of change of the price then employment INCREASES.
(iii) The rate of change of the wage rate is smaller than the rate of change of the price then employment DECREASES.

So, it is DIFFERENCES in the rates of change of wage rate and price and NOT the absolute magnitude of change that affect employment. Every PERFECTLY SYNCHRONOUS inflation/deflation is employment-neutral, that is, employment sticks indefinitely where it actually is.

Perfectly synchronous inflation/deflation is, according to Simon Wren-Lewis, “what economists mean by inflation”. Synchronous=employment neutral inflation, though, is a LIMITING case that occurs with a probability CLOSE TO ZERO.

In general terms, the neutrality condition reads w=p+r+pr. Therefore, it is a matter of indifference whether the wage rate falls or rises or whether wages are sticky or not. ALL depends on relative changes. Employment increases if w is greater than p+r+pr and decreases in the opposite case.

So, what is needed in the present situation is an asynchronous inflation, more specifically, w greater than r and p=0. This increases also the multiplier effect of expansive fiscal policy. The wage increase has to take the lead.

Egmont Kakarot-Handtke

* The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is given on Wikimedia. For details see ‘Keynes saw the problems but did not solve them


Immediately preceding 'Economic bungee jumping without cord'

Morons on math

Comment on Lars Syll on ‘Simpson’s paradox’

Blog-Reference

A theory is the humanly best mental representation of reality. A theory is fundamentally different from a commonsensical description of reality.

A theory must satisfy two criteria in order to be accepted to the corpus of scientific knowledge: material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.

For the refutation of a theory it suffices to demonstrate that it is either logically or empirically inconsistent. We know by now that economics is both. The current state is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provable false theories economics sits squarely at the proto-scientific level.

Economics is a failed science and this proves first of all that BOTH orthodox and heterodox economists are incompetent scientists. They do not even understand what science is all about. Feynman called these people cargo cult scientists.

Cargo cult scientists are easy to spot because they talk often about methodology, i.e. how to do science properly, and what they say is glaring nonsense. Paul Romer is a case in point: “Math cannot establish the truth value of a fact. Never has. Never will.”

No, because scientific truth is defined by material AND formal consistency, and math is supposed to guarantee formal consistency. And this is what it has done so admirably throughout history ― except in economics. This, though, is not the fault of math but of economists.

Scientists know that math works but they are not sure why: “At this point an enigma presents itself which in all ages has agitated inquiring minds. How can it be that mathematics, being after all a product of human thought which is independent of experience, is so admirably appropriate to the objects of reality?” (Einstein, 1921), see also (Wigner, 1979), (Velupillai, 2005)

“I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing. (Feynman, 1992)

“The method of reasoning by chains of syllogisms is nothing but a transformation mechanism, applicable just as well to one set of premises as to another; it could not serve therefore to characterize these premises. In other words, it is the external form which the mathematician gives to his thought, the vehicle which makes it accessible to others, in short, the language suited to mathematics; this is all, no further significance should be attached to it.” (Bourbaki, 2005)

Genuine scientists know how to use math to their advantage, economists=cargo cult scientists don’t. In very general terms it can be said that economists fail because of the Fallacy of Insufficient Abstraction. What economist have not yet understood is that the subject matter of economics is not Human Nature/behavior/action but the behavior of the economy. Economics is NOT a social science but a system science.

The economy, i.e. the subject matter of economics, is an abstraction that has to be clearly defined by a set of premises, a.k.a. foundational propositions, a.k.a. axioms. Without clear premises all conclusions are for the waste basket, the whole argument is scientifically worthless, and economic policy guidance has no sound scientific foundation.

When the premises are not correctly defined mathematics cannot work its magic and as a collateral damage econometrics become a senseless exercise. When utility maximization is put into the premises no testable proposition ever results. Economists do not understand this elementary methodological fact since 140+ years.

It is not so that mathematics or standard statistical methods are inapplicable in economics. The failure of economics is uniquely and exclusively caused by the scientific incompetence of economists. The ultimate reason why economics never rose above the proto-scientific level is that it is built upon false premises. 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.”

In the last 200+ years neither orthodox nor heterodox economists have produced scientific knowledge of their thing. They do not even understand the elementary mathematics of accounting.*

Egmont Kakarot-Handtke

* See for example ‘The final implosion of MMT’ and ‘How Keynes got macro wrong and Allais got it right


For details of the bigger picture see cross-references Math/Mathiness

June 20, 2017

The long genealogical tree of economic storytelling

Comment on Dániel Oláh on ‘The Amazing Arab Scholar Who Beat Adam Smith by Half a Millennium’

Blog-Reference

Dániel Oláh reports: “The biggest merit of Khaldun lies in his revolutionary methodological thinking. … Based on this it’s easy to understand that Ibn Khaldun presented very similar ideas as Adam Smith, but hundreds of years before the Western philosopher. But Khaldun said even more about the economy. He analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century …”

The fault of this argument lies in the fact that economics is, to begin with, NOT a social science.#1 Worse, to define economics as a social science has been the foundational blunder 200+ years ago. Worst, not to realize this until this day is the very proof of utter scientific incompetence of the representative economist.

Adam Smith was NOT a scientist but a storyteller: “… 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)

Schumpeter had to argue against the plain fact that the supply and demand story is not much better than the commonsensical story of how the sun travels from east to west over the firmament: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

Neither Smith nor Marshall ever rose above the level of proto-scientific storytelling.#2 The same holds true for Ibn Khaldun. To put this in perspective is not to deny that Ibn Khaldun marked a progress in comparison to his precursors who limited themselves “to transmit knowledge without modifying, editing or adding any remarks to the tradition.”

Ibn Khaldun deserves credit as a forerunner of Adam Smith. But Smith was more a political blatherer than a scientist. So Ibn Khaldun is not the forerunner of economics as a science. The current state of economics is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. With the pluralism of provable false theories economics sits squarely at the proto-scientific level.#3

It is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to 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. The history of political economics since Adam Smith can be summarized as perpetual violation of scientific standards. Theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith and Ricardo fought for liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.

Political economics has produced NOTHING of scientific value since Adam Smith. This is not the fault of Ibn Khaldun, of course, but of scientifically incompetent economists who have not realized until this day that economics is NOT a social science but a system science.#4 What is required since Ibn Khaldun is to double down on revolutionary methodological thinking.

Egmont Kakarot-Handtke

#1 For details see ‘Economics is NOT a social science
#2 For details see ‘Marshall and the Cambridge school of plain economic gibberish
#3 See ‘Economics: 200+ years of scientific incompetence and fraud
#4 See ‘First Lecture in New Economic Thinking

June 16, 2017

Economic bungee jumping without cord

Comment on Simon Wren-Lewis on ‘Raising the inflation target’

Blog-Reference and Blog-Reference on Jun 17

You say: “The argument for a higher inflation target is straightforward, once you understand two things. First the most effective and reliable monetary policy instrument is to influence the real interest rate in the economy, which is the nominal interest rate less expected inflation. Second nominal short term interest rates have a floor near zero (the Zero Lower Bound, or ZLB).”

The argument for a higher inflation target is NOT straightforward, once you understand two things. First interest theory is axiomatically false.#1 Because of this monetary policy never had sound scientific foundations. Second the same holds for fiscal policy.#2

Let us assume for a moment that, for whatever reasons, neither monetary nor fiscal policy is applicable. So, given investment expenditures of the business sector and the expenditure ratio of the household sector, the only alternative left is to directly influence the macroeconomic price mechanism.#3

The argument AGAINST higher inflation is that it REDUCES employment. Given the overall situation, the ONLY sensible policy is to increase the average wage rate, such that the rate of change of the wage rate is greater than the rate of change of productivity, because this increases employment. This is a SYSTEMIC necessity and has NOTHING to do with social policy. Employment is co-determined by the relationship between average wage rate, price and productivity. This relationship should automatically produce full employment but does not.

Standard employment theory is false.#4 The proposal to get the economy going by increasing price inflation is the direct result of the complete lack of understanding how the market economy works.

Egmont Kakarot-Handtke

#1 See ‘The Emergence of Profit and Interest in the Monetary Circuit
#2 See ‘Austerity and the utter scientific ignorance of economists
#3 For more details see ‘Think deeper
#4 For details of the bigger picture see cross-references Employment

***
REPLY to Simon Wren-Lewis on Jun 19

You say: “For every borrower there is a saver.”

In this generality this is trivially true, nonetheless it is grossly misleading. To see this, let us take the pure consumption economy as the most elementary case as starting point (no investment, not government, no foreign trade). Wage income is denoted as Yw, consumption expenditures as C.#1

The sector balances (Sm≡Yw-C, Qm≡C-Yw) always add up to zero, i.e. Qm+Sm=0 or Qm=-Sm, that is, the business sector makes a monetary profit Qm which is equal to the household sector’s dissaving -Sm or a loss -Qm which is equal to monetary saving Sm. So, if the household sector dissaves it uno actu happens that the household sector becomes the borrower vis a vis the banking sector (including the central bank) and the business sector becomes the lender to the banking sector. When we cut the banking sector short the business sector becomes the ultimate lender to the household sector.

From this immediately follows that saving and investment is NEVER equal, neither ex ante nor ex post, and ALL Keynesian and Post Keynesian and New Keynesian and IS-LM models are provable false.#2

The same relationship holds when the private households are substituted by public households. Therefore, the period deficit of the public sector reappears one-to-one as profit of the business sector. When we cut the banking sector short the business sector becomes the ultimate lender to the public sector.

Needless to say that the business sector prefers the public sector as ultimate borrower. This explains the safe asset shortage if the monetary profits stem from private deficit spending.

The deficit spending of the private and public households together determine the overall profit of the business sector. This means that Keynesian deficit spending is the ultimate profit machine if the household sector’s budget is balanced. Increased private and public deficit spending in turn explains the falling labor share.#3

Whether public deficit spending helps employment depends on whether the average price increases or not. In any case, though, public deficit spending helps profit one-to-one. So, whoever wants the maximum employment effect from deficit spending has to see to it that the price increase is zero.#4

Now, you are in favor of expansive fiscal policy and propose to increase the inflation target. This is as counterproductive as can be. The combination of increasing public deficit spending and a rising price increases profit and leaves employment unaffected.

From the standpoint of the 1-percenters your policy mix is perfect. From the standpoint of the 99-percenters it is another instance of expert madness. The correct policy in the given situation is to put traditional=failed monetary and fiscal policy aside and to increase the average wage rate at ZERO price inflation.

#1 For details see ‘First Lecture in New Economic Thinking
#2 For details see ‘Profit and the collective failure of economists
#3 See ‘Profit and distribution: a primer
#4 See ‘Unemployment is high because economics is false: period, full stop, end of story


Immediately following 'Attention: there are THREE types of inflation'

June 15, 2017

How Heterodoxy got lost in the methodological woods

Comment on Lars Syll on ‘What kind of realist am I?’

Blog-Reference

Lars Syll advertises his realist methodology: “Perhaps the most important contribution a researcher can make is reveal what this reality that is the object of science actually looks like.”

Translated into economics this means in concrete terms that the most important contribution an economist can make is to reveal how the actual economy works. This contribution takes the form of the true theory with truth well-defined as material and formal consistency.

Sometimes it is necessary to reflect about methodology, but only as a stepping stone on the way to the true economic theory. The economist who thinks he is in the possession of a superior methodology is supposed ― NOT to run around and give good methodological advice but ― to directly apply it and show the results. As J. S. Mill put it: “Doubtless, the most effectual mode of showing how the sciences of Ethics and Politics [and Economics] may be constructed, would be to construct them.”

Lars Syll rightly criticizes the methodology of Orthodoxy, which comes under the umbrella heading of methodological individualism, always implying that his realist methodology is superior, yet he has never produced a solid piece of economic theory. He has not even realized that Keynesianism, his prototype of a superior approach, is logically defective.#1

The repetitive blunder of Heterodoxy consists in getting stuck with methodology: “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)

Heterodoxy in general and Lars Syll in particular talk much about how ‘the science of economics may be constructed’ but never get started.

The crucial step on the way to the true theory is to move from the naive description of reality to abstraction: “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation’.” (Mill)

Needless to emphasize that abstraction can go badly wrong. Starting with the realistic description ‘the earth stands still and the sun goes up’ Ptolemy constructed the Geo-centric theory. With this, Ptolemy committed the Fallacy of Insufficient Abstraction. The later paradigm shift from Geo-centrism to Helio-centrism delivered the best known example for successful abstraction: “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [Helio-centric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them ... I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (Galileo)

The realists never got the point: “Bacon, the philosopher of science, was, quite consistently, an enemy of the Copernican hypothesis. Don’t theorize, he said, but open your eyes and observe without prejudice, and you cannot doubt that the Sun moves and that the Earth is at rest.” This is how realists became the laughing stock of science and the whole filibuster about realism/unrealism became pointless.

There are TWO pitfalls in the process of abstraction, (i) that the unkown ‘essential’ aspects of reality are unintentionally abstracted away, i.e. that reality gets lost, and (ii), that the ‘inessential’ aspects of reality are not abstracted away, i.e. that the analysis remains on the commonsensical surface. Accordingly, we have (i) the Fallacy of Lethal Abstraction, and (ii), the Fallacy of Insufficient Abstraction. Orthodox economics suffers from (i), heterodox economics from (ii). And this is why economics is a failed science and why economists never came to grips with reality.

Lars Syll’s realist methodology is good for criticism but worthless for the axiomatic reconstruction of economics and therefore prevents the necessary paradigm shift, i.e. genuine scientific progress.

The common blunder of Orthodoxy and Heterodoxy consists of defining economics as social science. While it is quite obvious that human behavior plays an important role in how the economy develops, this is NOT the subject matter of economics but of psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory etcetera. Economics has to focus on the systemic aspect of the economy. That means, economics is NOT a social science but a system science. Put differently, the focus of the theory of flight is NOT on why crew and passengers are on a plane, what their ulterior motives are, how they behave, and whether they are happy or not. The focus is on what makes the plane fly, i.e. the laws of aerodynamics, thermodynamics and so on. The theory of flight abstracts from the concrete human beings and leaves all Human Nature issues to social scientists, that is, to people who will NEVER get a plane off the ground.

Lars Syll argues: “The overarching flaw with methodological individualism and rational choice theory is basically that they reduce social explanations to purportedly individual characteristics. But many of the characteristics and actions of the individual originate in and are made possible only through society and its relations.”

This is a true example of the Fallacy of Insufficient Abstraction. The overarching blunder of BOTH orthodox and heterodox economists is that they dabble in psychology and sociology, which is NOT their proper business, and have until this day NOT figured out how the price- and profit mechanism works. Walrasianism, Keynesianism, Marxianism, Austrianism is proto-scientific rubbish and the realist Lars Syll stands clueless right in the middle of it.#2

Egmont Kakarot-Handtke

#1 See ‘How Keynes got macro wrong and Allais got it right
#2 See ‘Economics: 200+ years of scientific incompetence and fraud


For details of the bigger picture see cross-references Heterodoxy

June 14, 2017

Economics: 200+ years of scientific incompetence and fraud

Comment on Noah Smith on ‘Is economics a science?’

Blog-Reference

“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 fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price- and profit mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.#1 With the pluralism of provable false theories economics sits squarely at the proto-scientific level.

The representative economist either does not realize it or cannot officially admit it. In this dire situation, the Pavlovian reaction is always and everywhere to muddy the waters and to retreat deeper into the swamp. Noah Smith is no exception, he rhetorically asks: “What the heck is a ‘science’?” and answers “No one knows.”

This is patently false. Science is, since the ancient Greeks made the distinction between opinion (= doxa) and knowledge (= episteme), well-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)

First question to Noah Smith: if no one knows what science is how does it come that we have a prize with the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#2 And how does it come that economics is since Adam Smith/Karl Marx explicitly defined as science? And what does every economist learn in Econ 101?: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins)

Fact is that economics claims to be a science but is what Feynman called a cargo cult science: “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 is the true theory. Economics is a failed science because none of the four main approaches satisfies the criteria of material and formal consistency. When this is pointed out economists immediately retract and fire their barrage of brain-dead excuses.#3 Noah Smith applies the same old defense maneuvers. Needless to emphasize that every single of these excuses has been refuted long ago.

Economists have found a way to deal with the problem of manifest failure: they simply ignore and violate scientific standards. Or, as Blaug put it, they are playing tennis with the net down. Morgenstern reminded his fellow economists back in 1941: “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.”

This is why Walrasianism is still around although it has already been dead in the cradle 140+ years ago. Standard economics has been based on provable false axioms but economists proudly cling to them until this day: “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) Note in passing that maximization and equilibrium are NONENTITIES like angels or the Easter Bunny. Time for Krugman and the rest to end stubborn self-delusion: all equilibrium models are a priori false and this starts with textbook supply-demand-equilibrium.#4

Economics is a failed science because economists (i) are scientifically incompetent, and (ii), violate scientific standards/ethics on a daily basis. Since Adam Smith economic policy guidance never had sound scientific foundations. Both, orthodox and heterodox economists sell proto-scientific rubbish in the bluff package of science.

In order to become a science, economics needs a paradigm shift.#5 Nothing less will do.

Egmont Kakarot-Handtke

#1 See ‘First Lecture in New Economic Thinking
#2 See ‘The real problem with the economics Nobel
#3 See ‘Failed economics: The losers’ long list of lame excuses
#4 See also ‘The father of modern economics and his imbecile kids
#5 See also ‘The identification problem and the dumping of the old guard


For details of the bigger picture see cross-references Incompetence

***
REPLY to Jake Thompson on Jun 18

You argue: “It’s certainly, by a long shot, the most scientific of the social sciences.”

Your lethal methodological blunders are:
(i) The underlying binary code of science is true/false with NOTHING in between. Because of this, economics is either a science or not. The statement, economics is more scientific than X, is entirely devoid of meaning. (Just like the statement, Jake Thompson is by a long shot more innocent than Lee Harvey Oswald. Guilty/not guilty is also binary with NOTHING in between.)
(ii) Scientific truth is well-defined by material and formal consistency. It is not an easy task to establish scientific truth but from these practical difficulties cannot be concluded that it does not exist or that anything goes.
(iii) The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

Conclusion: Economics is NOT a science.

In order to rise above the proto-scientific level, economics needs a paradigm shift.#1 What failed economists first of all have to understand is that economics is NOT a social science but a system science. To define economics as a social science has been the foundational blunder 200+ years ago. Being scientifically incompetent, though, economists will not understand this. It’s Catch 22 and the representative economist is trapped in the scientific coal-pit.#2

#1 For details see ‘Redefining economics’ and cross-references Paradigm shift
#2 “... but 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) Obviously, you lack even this tiny quantity of judgement.

***
REPLY to Anonymous on Jun 20

You argue: “Some parts of Econ are a science (game theory and I’d argue basic macro in simple markets) while the rest is more of an art (everything else).”

You are trying to evade a clear-cut conclusion and your argument is way beside the point.
(i) Economics is either a science or not. That parts of it are acceptable is irrelevant. Every false theory has acceptable parts. Even the flat earth theory has some content that is true. False theories are always partially and commonsensically true. This is exactly why they can survive.
(ii) Game theory is NOT economics because economics does not deal with human behavior but with the behavior of the economic system. Economics is a system science and all Human Nature/behavior issues belong to psychology, sociology, anthropology and so on. To define economics as a social science has been the foundational blunder 200+ years ago.
(iii) Basic macro is provable false.*
(iv) To call economics an art is simply an euphemism.

The conclusion is inescapable: Economics is NOT a science.

* For details see ‘Textbooks and the mental cloning of dumb economists’ and ‘Why Post Keynesianism Is Not Yet a Science

***
REPLY to Anonymous on Jun 24

You say: “Tell me your definition of science and we can debate this further.”

(i) Science is well-defined since 2000+ years. There is NO such thing as “my” or “your” definition. Because of this there is NOTHING to debate.
(ii) Either one complies to the well-defined and well-known scientific standards or one is out of science.
(iii) Economics is materially and formally inconsistent and therefore out of science.#1
(iv) The definition of science has been given in the post above.#2 It seems that your attention span is less than that of a fruit fly.
(v) You say: “I thought rational choice theory and behavioral economics was a thing.” Yes, this is the very characteristic of the scientifically incompetent economist.#3
(vi) All of your arguments show that you are trying to play silly semantic games.

#1 “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands)
#2 See here or here
#3 See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

June 13, 2017

Simpleminded losers

Comment on Paul Krugman on ‘Macroeconomics: The Simple and the Fancy’

Blog-Reference and Direct-Link and Blog-Reference

“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 fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price- and profit mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.

In science, the primary question is NOT about the simple or the fancy but about the true and the false, with truth well-defined as material and formal consistency. The point is that BOTH the simple and the fancy models are provable false. This includes Paul Krugman’s IS-LM version.#1

Economics is a failed science and Paul Krugman is a failed scientist.#2 Since Adam Smith economic policy guidance never had sound scientific foundations. It is as simple as that.

Egmont Kakarot-Handtke

#1 See ‘Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#2 For details see references ‘Just another wreck


Related 'Just another wreck'

June 11, 2017

Needed: The Worst of the Worst of economics blogs

Comment on Barkley Rosser on ‘EconoSpeak In The Top 100 Economics Blogs’

Blog-Reference

Every good thing/institution is eventually messed up or abused. This is the social version of the Second Law of Thermodynamics which says that the total entropy of an isolated system can only increase over time. This holds for the internet in general and for economics blogs in particular: total stupidity increases over time if not actively reversed.

Since economics is a science, the basic idea of the econoblogosphere is to contribute to the dissemination and growth of knowledge. Accordingly, the econoblogosphere becomes dysfunctional if it increases opinion (= doxa) instead of knowledge (= episteme).#1 The econoblogosphere reaches the entropic maximum when it consists entirely of obsolete/ falsified models/theories, political propaganda, sitcom gossip, and disinformation.

Crap thrives in the Circus Maximus and the whole issue is not new in economics: “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)

Marginalism has already been dead in the cradle 140+ years ago but it returns as Marginal Revolution at the top of Prateek Agarwal’s Top 100 list. Some people still have not realized that Marginalism has been refuted on all methodological counts long ago and is scientifically indefensible.

In order to prevent the institutional degeneration of the econoblogosphere some attention management is necessary. It consists in a positive list of blogs that foster the growth of scientific knowledge and a negative list of blogs that inhibit science.

While we have any number of journalistic Top 10/100 lists that rely on the naive metric of clicks or prestige or popularity or optical/communicative attractiveness a Top Ten list of qualitatively deficient and manipulative blogs is lacking. Occasionally, one hears the complaint that posts have been blocked or removed.

It is unknown to what extent scientific standards are violated in the econoblogosphere.#2 The scientific community is based on the principle of self-governance, so the obvious question to ask is whether the economic societies could establish something like a systematic ex-post peer review including an Evidence Center for the collection and verification of complaints about agenda pushing/censorship/suppression/manipulation/ fraud.

It should be obvious that the national economic societies cannot tolerate members that violate what has been called Feynman Integrity on their internet blogs.#3

What economics needs is not only an objective list of innovative blogs that push the necessary paradigm shift but also the Top Ten of disinformation, political propaganda, and violation of scientific standards. Prateek Agarwal’s list ― whether intentionally or unintentionally does not matter ― stabilizes and reinforces established stupidity, scientific incompetence, and the political corruption of both orthodox and heterodox economics.

Economics is a failed science and Prateek Agarwal’s list provides a comprehensive overview of the proto-scientific mess.

Egmont Kakarot-Handtke

#1 See also ‘Economics between cargo cult, farce, and fraud
Media-fake-farce-fraud-storytelling-macro
Economics and truth
Economics: The pluralism of false theories is over
Economists: Incompetent? Stupid? Corrupt?
#2 The censorship on EconoSpeak is a case in point.
#3 See also ‘Feynman Integrity, fake science and the econoblogosphere

***
REPLY to Barkley Rosser on Jun 11

You say: “… let me note that your big point about making a distinction between retained and distributed profits has absolutely nothing to do with any of the standard axioms of Walrasian neoclassical economics, or of the axioms or assumptions made by any of the other schools of economic thought, nothing.”

That is (i) correct and (ii) shows that you do not understand what a paradigm shift is all about. This is what Wikipedia has to say: “A paradigm shift, …, is a fundamental change in the basic concepts and experimental practices of a scientific discipline. Kuhn contrasted these shifts, which characterize a scientific revolution, to the activity of normal science, which he described as scientific work done within a prevailing framework (or paradigm).”#1

The key words are “fundamental change in the basic concepts …” which means more specifically the REPLACEMENT of false concepts by true concepts.#2 For this simple reason, the structural-systemic axioms have “absolutely nothing to do with any of the standard axioms of Walrasian neoclassical economics, or of the axioms or assumptions made by any of the other schools of economic thought, nothing.” Indeed, true and false are binary and have NOTHING in common, never had, never will.

You are consistently on the false side of the true/false divide.

#1 For details of the bigger picture see cross-references Paradigm shift
#2 See ‘First Lecture in New Economic Thinking

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REPLY to Barkley Rosser on Jun 12

Economics is NOT a science, and economists are NO scientists. The objective of science is the true theory with truth well-defined as material and formal consistency. In economics the situation is this: there is political economics and theoretical economics and 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. Walrasianism, Keynesianism, Marxianism, Austrianism is axiomatically false. The four main approaches are scientifically indefensible.

This is not a big problem for the representative economist because he is ― to begin with ― NOT in the science business but in the politics business. The irreconcilable difference between scientific and political thinking has been made clear by Peirce: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

The representative economist is NOT a scientist but a political agenda pusher. The four main approaches are NOT science but what Feynman called cargo cult science or what we have come to call fake.

Now fake is one thing but corruption is another thing. That you are talking utter nonsense on this blog is one thing but that you and your sidekick Sandwichman are blocking/framing/ removing posts on EconoSpeak is another thing.

Taken in isolation, EconoSpeak is merely a nuisance. But EconoSpeak is not an unfortunate aberration but symptomatic for the whole of economics as it presents itself in the econoblogosphere.

I have not yet posted on all blogs that are on Prateek Agarwal’s Top 100 list but I have posted on a representative sample of orthodox and heterodox blogs. What I have practically experienced is that EconoSpeak is not the proverbial rotten apple in the barrel but that the whole barrel is spoiled.#1

My actual list of the Rotten Dozen, i.e. the tip of the iceberg, is based on a raw estimation of suppressed/removed posts over a longer time span and reads: 1 Real-World Economics Review blog, 2 Economist’s View, 3 Lars P. Syll blog, 4 EconoSpeak, 5 Uneasy Money, 6 Billy blog, 7 Information Transfer Economics, 8 bradford-delong.com: Grasping Reality with Both Hands, 9 Roger Farmer’s Economic Window, 10 evonomics, 11 Institute for New Economic Thinking, 12 Worthwhile Canadian Initiative.

Time to get these stupid and corrupt political folks and the rest of Prateek Agarwal’s Top 100 list out of economics. The paradigm shift is overdue.

#1 For details of the bigger picture see cross-references Political economics

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REPLY to Barkley Rosser on Jun 12

You say: “I would say I am doing better on empirical outcomes of forecasting here than you are.”

Of course, you are. Prediction/forcasting is since time immemorial the preferred artifice of political/religious brainwashers and con artists. Science does not predict.#1 But on YouTube you get as many predictions of the imminent economic collapse, WW3, and the Second Coming of Christ as you wish.

If you want to refute the systemic axiom set why do you not simply promote the testing of the structural-axiomatic Phillips curve?#2 In science, empirical testing, not futile blathering and stuttering LOL decides the matter.

#1 See ‘Science does NOT predict the future’ and ‘ICYMI Prediction/Forecasting’ and ‘Macro poultry entrails reading’ and ‘Enough! Economists, retire now!
#2 See ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

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REPLY to Barkley Rosser on Jun 13

The title of this thread is: “EconoSpeak In The Top 100 Economics Blogs”. Top 10/100 charts are a well-established instrument of attention-, reputation-, and trend management. Every highschool dropout in the marketing and PR business knows how to apply this simple and cost-effective instrument for selling crap to the crowd and telling the herd where to run.

To apply this instrument in the entertainment industry, though, is one thing, to apply it in the sciences is another thing. In the sciences the primary objective is NOT the growth of popularity but the growth of knowledge. To award something like Oscars in the sciences is nothing less than a takeover by the all-devouring Circus Maximus and the inevitable transmogrification of scientists into sitcom clowns.

As everybody knows by now, economics is a cargo cult science and since 200+ years as Political Economy integral part of the Circus Maximus, so a Top 100 list of economics blogs seems to be sorta-kinda appropriate.

Whatever Prateek Agarwal thinks he is doing or whatever he is trying to achieve does not matter. What he in fact does is to stabilize and reinforce established stupidity, scientific incompetence, and the political corruption of both orthodox and heterodox economics. Fact is that Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically indefensible.

So, NOTHING what is said and proposed and argued for or against by the representative economist on the economics blogs has a sound scientific foundation.#1 Economists do not know what profit is, this is a proven fact.#2 Because of this, economics blogs have been ― until recently ― the biggest self-debunking show on earth.

In order to get out of the proto-scientific swamp, what is needed as a first step is a Top 10/100 list of blogs ranked according to the degree of stupidity, scientific incompetence, and violation of scientific standards. As Barkley Rosser and his sidekick Sandwichman have proven again in this thread, EconoSpeak deserves to be at the top of the Top 100 chart of proto-scientific rubbish and political blather.

#1 See also ‘Just another wreck
#2 See ‘Profit and the collective failure of economists

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REPLY to Barkley Rosser on Jun 14

You say: “many of these people look to us to help provide this understanding and maybe even some policy answers.”

Yes, but other people have already realized that they will NOT get any help from economists, just the contrary: “… Napoleon claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

This, for example, is true for employment policy.#1 Because employment theory is false economists bear the intellectual responsibility for the social devastation of mass unemployment from the Great Depression onward.#2

You cite the big challenges (global warming, rising income inequality, speculative bubbles). The idea that orthodox or heterodox economists solve these questions is ridiculous because economists cannot make two steps without falling over their own feet. Here is the classical case: “His Collected Writings show that he [Keynes] 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.)

And so it goes on since 80 years. After-Keynesians cannot tell until this day what macroeconomic profit is.#3 And you hallucinate: “Oh, and we all know what profits are.”

Economists have not solved the Profit Puzzle until this day and there are not more than ten persons around the world who understand the significance of the conceptual disaster at the very heart of economics.#4 You are certainly not among them.

Because economists cannot solve the elementary questions of their subject matter they are unfit for solving any problem humanity might have. And this will last until the inescapable paradigm shift happens.

#1 See ‘Unemployment is high because economics is false: period, full stop, end of story
#2 See ‘Economists and the destructive power of stupidity
#3 See ‘The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#4 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008, p. 10)