February 17, 2017

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

Comment on Lars Syll on ‘Modern macroeconomics — too much micro and not enough macro’

Blog-Reference

There are an infinite number of explanations that can be given for anything. And, even those explanations that have de facto zero reality content have psychological plausibility and phenomenological realism, that is, references to real places, real persons and real events. So, what we have is a state of ambiguity with an excess of explanations that are false but either not disproved or not disprovable because they deal with nonentities.

This is a very old problem and it has been tackled and solved more than 2000 years ago: “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. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion ... on the other.” (Popper)

In order to overcome the plurality of false explanations the ancient Greeks invented science. Basically, science is a sorting process that consists in sifting trough the huge pile of contradicting explanations in order to figure out which one is true. This is not an easy task and it is severely hampered by the fact that humans are prone to observational and logical errors and mistakes.

Science is the systematic elimination of the natural ambiguity and inconclusiveness of explanations in order to finally arrive at a clear-cut true/false result: “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)

The goal of science is the true theory, that is, the humanly best mental representation of reality.

Confronted with the vastness and complexity of reality every branch of the sciences is confronted with the problem of where to start. John Stuart Mill put it thus: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”

Krugman, for example, is quite explicit about how he has solved the starting problem: “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 neoclassical world is given with these hard core propositions, a.k.a axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. (Weintraub)

These microfoundations are the wrong starting point as almost everybody knows by now. Economics from Jevons/Walras/Menger to DSGE/RBC/New Keynesianism is a scientific failure, that is, it is materially/formally inconsistent.#1 As a logical consequence, the false microfoundations have to be fully replaced by the true macrofoundations.#2

There is a simple rule for spotting and eliminating false models: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

#1 See also: ‘Economists’ three-layered scientific incompetence
#2 See ‘How to restart economics


Related 'We are not yet out of the wood; in fact, we are not yet in it' and 'First Lecture in New Economic Thinking'. For more details of the bigger picture see cross-references Incompetence and cross-references Axiomatization and cross-references Paradigm shift